Essays on Cooperation, Coordination, and Conformity
Open Access
- Author:
- Xue, Jun
- Graduate Program:
- Economics
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- August 12, 2004
- Committee Members:
- Kalyan Chatterjee, Committee Chair/Co-Chair
Nezih Guner, Committee Member
Vijay Krishna, Committee Member
Tomas Sjostrom, Committee Member
Susan Xu, Committee Member - Keywords:
- cooperation
- Abstract:
- This thesis consists of three essays, discussing three related aspects of human behavior, namely, cooperation, coordination, and conformity. The first essay studies the repeated Prisoner's Dilemma in a local interaction setup. We construct a sequential equilibrium in pure strategies that sustains cooperation for sufficiently patient players. The notion of sequential equilibrium is extended to extensive form games with infinite time horizon and additive payoffs across time. The strategy is embedded in an explicitly defined expectation system, which is a more compact way to describe strategies than machines in the local interaction setup, although essentially the expectation system can also be viewed as a finite state automaton. The belief system is derived by perturbing the strategy appropriately and following the principle that parsimonious explanations receive all the weight. The equilibrium has the property that after any global history, full cooperation will be restored after a finite number of periods. Therefore, the explicitly defined expectation system serves as a social norm. What matters is not a common observation of a physical outcome, what matters is a common understanding of the social norm, the understanding that everybody knows the norm and is willing to follow it after any history. The second essay deals with coordination games. By adding a small amount of noise to the information structure, the theory of global games is able to select a unique equilibrium in coordination games with a finite number of players and two actions, a safe action and a risky action. As the noise vanishes, however, it is often the case that positive amount of inefficiency remains in the selected equilibrium. This essay argues that this is partly due to the simultaneity of the moves. If the game is played sequentially with the order of moves determined endogenously, and if the risky action is irreversible and the safe action is reversible, then efficiency will be asymptotically restored as the noise vanishes. However, if the safe action is irreversible, then dynamics will not make much difference to the possible inefficiency of equilibria. Thus two coordination games may look very similar if they are treated as simultaneous move games, yet they can be very different if they are treated as sequential move games. For example, there has been much recent interest in the phenomenon of currency attacks and its similarity to the well-known model of bank runs. However, we show that these games are quite different in the dynamic setting and endogenous timing might help to resolve inefficiencies in the first but not the second. In the third essay we propose to use Polya urn processes to model the emergence of order in an environment where people interact with each other sequentially and indirectly, through a common physical facility. Examples include rewinding video tapes, erasing blackboards, and flushing toilets, etc. We find that a minimum amount of imitation is able to generate a maximum level of conformity.