Econometrica: Jul 1967, Volume 35, Issue 3
An Experimental Study of Cooperative Duopoly
James W. FriedmanThe experiment reported here involved the running of a set of complete information duopoly games in which subjects were permitted to communicate by means of written messages before each decision. There are a number of interesting questions which arise in situations of this sort: What proportion of the time do subjects agree on a joint decision? How do their actions vary depending on whether or not agreement has been reached? How frequently are decisions Pareto optimal? Do any standard solution concepts, such as the Nash solution, joint profit maximization or equal split of profits, characterize the Pareto optimal outcomes? The results are highly gratifying as they strongly confirm one's intuition: Agreement is present in a substantial majority of decisions, and Pareto optimality is a feature of most agreements. These results are some indication that the rationality assumptions made by economists are not unreasonable.
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