The role of strategic uncertainty in games: An experimental study of cheap talk and contracts in the Nash demand game

Nick Feltovich, Joe Swierzbinski

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

We utilise results from a human-subjects experiment to examine the connection between strategic uncertainty and outcomes in games. Our basic game is a Nash demand game where one player has an outside option available. A "chat" treatment allows bargainers to send cheap-talk messages prior to playing the basic game, and in a "contracts" treatment, they can additionally propose and accept binding contracts. We propose that strategic uncertainty comprises at least two facets: "coordination-type", which is lower in the chat game than in the basic game, and "rationality-type", which is lower in the contracts game than in the chat game. We find that both types of strategic uncertainty impact bargaining outcomes: moving from the basic game to the chat game, and thence to contracts, improves several aspects of outcomes, such as higher efficiency, less opting out and less under-demanding. Other results include a treatment effect on the types of agreements that are reached.
Original languageEnglish
Pages (from-to)554-574
Number of pages21
JournalEuropean Economic Review
Volume55
Issue number4
Early online date17 Jul 2010
DOIs
Publication statusPublished - May 2011

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Keywords

  • Strategic uncertainty
  • Nash bargaining
  • Unstructured bargaining
  • Outside option
  • Cheap talk
  • Binding agreements
  • Coase theorem

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