Communication via Delay in a Coordination Game

This paper proposes a new communication protocol in coordination games with binary actions and Pareto-ranked equilibria, which comes from an option to delay. In the first period, players choose between committing to the risk-dominant (safe) action in the game or delaying their choices until a second period. Players who wait then choose between the risk-dominant and payoff-dominant (efficient) actions in the second period. The delay option enables forward-induction reasoning to operate in the game, whereby a player's decision not to choose the risk-dominant action in the first period signals an intention to choose the payoff-dominant action in the second period. We assume that players have ε-social preferences, which means that they do not choose strategies that hurt other players if there are no benefits to themselves. Under this assumption, iterated weak dominance yields a unique strategy profile whereby each player waits in the first period and chooses the payoff-dominant action in the second period if and only if everyone else waited. That is, efficient coordination is achieved. In an experiment, we find that most subjects adopt the unique iteratively undominated strategy, and, thus, the introduction of the delay option significantly promotes efficient coordination