The Potential of Social Identity for Equilibrium Selection

Chen, Roy; Chen, Yan

doi:10.1257/aer.101.6.2562

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American Economic Review: Vol. 101 No. 6 (October 2011)

AER Volume. 101, Issue 6 | left

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The Potential of Social Identity for Equilibrium Selection

Article Citation

Chen, Roy, and Yan Chen. 2011. "The Potential of Social Identity for Equilibrium Selection." American Economic Review, 101(6): 2562-89.

DOI: 10.1257/aer.101.6.2562

Abstract

When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predictions in the minimum-effort game in the laboratory under parameter configurations which lead to an inefficient low-effort equilibrium for subjects with no group identity. For those with a salient group identity, consistent with our theory, we find that learning leads to ingroup coordination to the efficient high-effort equilibrium. Additionally, our theoretical framework reconciles findings from a number of coordination game experiments. (JEL C71, C91, D71)

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Authors

Chen, Roy (U MI)
Chen, Yan (U MI)

JEL Classifications

C71: Cooperative Games
C91: Design of Experiments: Laboratory, Individual
D71: Social Choice; Clubs; Committees; Associations