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American Economic Review Vol. 101 No. 6 2011

The Potential of Social Identity for Equilibrium Selection

Roy Chen1; Yan Chen2

1 Department of Economics, University of Michigan, 611 Tappan Street, Ann Arbor, MI 48109-1220. · 2 School of Information, University of Michigan, 105 South State Street, Ann Arbor, MI 48109-2112.

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.

DOI
10.1257/aer.101.6.2562
Volume
101
Issue
6
Pages
2562-2589
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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