Bounded best-response and collective-optimality reasoning in coordination games

- We investigate experimentally the modes of reasoning used in coordination games.
- We investigate the conditions under which level-k and team reasoning are used.
- We find that both modes of reasoning are used, depending on properties of the games.
- We suggest that coordination cannot be explained by a single theory.

We investigate experimentally the conditions under which bounded best-response and collective-optimality reasoning are used in coordination games. Using level-k and team reasoning theories as exemplars, we study games with three pure-strategy equilibria, two of which are mutually isomorphic. The third is always team-optimal, but whether it is predicted by level-k theory differs across games. We find that collective-optimality reasoning is facilitated if the collectively optimal equilibrium gives more equal payoffs than the others, and is inhibited if that equilibrium is Pareto-dominated by the others, considered separately. We suggest that coordination cannot be explained by a single theory.