Does payoff equity facilitate coordination? : a test of Schelling's conjecture

Starting from Schelling (1960), several game theorists have conjectured that payoff equity might facilitate coordination in normal-form games with multiple equilibria - the more equitable equilibrium might be selected either because fairness makes it focal or because many individuals dislike payoff inequities, as abundant experimental evidence suggests. In this line, we propose a selection principle called Equity (EQ), which selects the equilibrium in pure strategies minimizing the difference between the highest and smallest payoff, if only one such equilibrium exists. Using a within-subjects experimental design, furthermore, we study the relative performance of the equity principle in six simple 2x2 coordination games. Overall, we find that Equity explains individual behavior better than a large range of alternative theories, including theories of bounded rationality and several other equilibrium selection principles. Further, a classification analysis suggests the existence of two main groups of players: (i) players who tend to play as Equity predicts, and (ii) a miscellaneous group of players who either go for the risk dominant equilibrium or act in a boundedly rational manner. This heterogeneity seems to be behind most of the coordination failures that we observe.