March 1, 2002
In an experimental study we examine a variant of the 'minimum effort game', a coordination game with Pareto ranked equilibria, and risk considerations pointing to the least efficient equilibrium. We focus on the question whether simple cues such as smiles, winks and handshakes could be recognized and employed by the players as a tell-tale sign of each other's trustworthiness, thus enabling them to coordinate on the more risky but more rewarding Pareto efficient equilibrium. Our experimental results show that such cues may indeed play a role as coordination devices as their information value is significant and substantial.
J.E.L classification codes: C72, C91, C92
Keywords:Coordination games, Pareto efficiency, Trust, Cues, Signals