How Do Market Prices and Cheap Talk Affect Coordination?
详细信息
文摘
Crises, such as bank runs, currency crises, and debt crises have the common structure of a coordination problem. The goal of my dissertation is to examine the role of communication institutions and public information in such coordination problems. I conduct experiments on coordination games with heterogeneously informed agents in three experimental conditions. In the Control Condition, subjects are not allowed to communicate with each other. In the Market Condition, subjects can communicate through trading in an asset market with two state-contingent securities, whose dividend realizations are tied to the game outcome. In the Cheap Talk Condition, they can communicate through non-binding messages. The experimental results show that market prices aggregate information about exogenous fundamentals, but coordination does not improve because uncertainty about other agents' action (strategic uncertainty) intensifies. In contrast, cheap talk transmits information and improves the efficiency of coordination as strategic uncertainty is reduced. Furthermore, I find that coarsening the cheap talk message space impacts coordination positively. The results shed light on the role of public information on coordination. In particular, market prices can have a feedback effect on real investment decisions when investors face coordination problems.