Tacit Coordination and Equilibrium Selection in a Merit-Based Grouping Mechanism : A Cross-Cultural Validation Study

We test, via cross-cultural comparison, the robustness of complex tacit coordination in an endogenous-grouping mechanism originally introduced and experimentally tested by Gunnthorsdottir, Vragov, Seifert and McCabe, 2010. The authors call their mechanism "Group-based Meritocracy Mechanism"(GBM). To our knowledge, the mechanism is the first formal model of contribution-based grouping. The mechanism requires coordination along two dimensions: 1) equilibrium selection and 2) the tacit coordination of an asymmetric equilibrium – a somewhat puzzling phenomenon commonly referred to as “Magic” (Kahneman, 1988, p. 12). Moreover, the mechanism's payoff-dominant asymmetric equilibrium is unlikely to be obvious to subjects. The experimental results show that both US and Icelandic subjects are capable of this dual coordination task with great precision. The results thus provide strong support for the Nash equilibrium as an organizing principle of aggregate behavior, as well as support for Payoff Dominance (Harsanyi & Selten, 1988). The paper also discusses the impact of culture on merit-based grouping mechanisms, and contains suggestions for further cross-cultural testing