When Does Communication Improve Coordination?

Ellingsen, Tore; Östling, Robert

doi:10.1257/aer.100.4.1695

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American Economic Review: Vol. 100 No. 4 (September 2010)

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When Does Communication Improve Coordination?

Article Citation

Ellingsen, Tore, and Robert Östling. 2010. "When Does Communication Improve Coordination?." American Economic Review, 100(4): 1695-1724.

DOI: 10.1257/aer.100.4.1695

Abstract

We study costless pre-play communication of intentions among inexperienced players. Using the level-k model of strategic thinking to describe players' beliefs, we fully characterize the effects of preplay communication in symmetric 2x2 games. One-way communication weakly increases coordination on Nash equilibrium outcomes, although average payoffs sometimes decrease. Two-way communication further improves payoffs in some games but is detrimental in others. Moving beyond the class of symmetric 2x2 games, we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities, but there are also games in which any type of communication hampers coordination. (JEL C72, D83)

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Authors

Ellingsen, Tore (Stockholm School of Economics)
Östling, Robert (Institute for International Economic Studies, Stockholm U)

JEL Classifications

C72: Noncooperative Games
D83: Search; Learning; Information and Knowledge; Communication; Belief