CORRELATED EQUILIBRIA, GOOD AND BAD: AN EXPERIMENTAL STUDY

We report results from an experiment that explores the empirical validity of "correlated equilibrium", an important generalization of Nash equilibrium. Specifically, we examine the conditions under which subjects playing the game of Chicken will condition their behavior on private third-party recommendations drawn from publicly announced distributions. We find that when recommendations are given, behavior differs from both a mixed-strategy Nash equilibrium and behavior without recommendations. In particular, subjects typically follow recommendations if and only if (1) those recommendations derive from a correlated equilibrium and (2) that correlated equilibrium is payoff-enhancing relative to the available Nash equilibria. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.