Efficient coordination in weakest-link games

Abstract

Problems of coordination are at the core of most economic and social decision situations. Theory and evidence from laboratory experiments show that when people are forced to interact with other people efficiency strongly decays over time. This leaves us with the puzzling uncertainty if all behavior we observe outside theoretical models and outside the lab also has this tendency towards inefficiency. In a series of laboratory experiments we show that in weakest-link (minimum effort games) maximal efficiency can be achieved when participants are allowed to choose their interaction neighborhood. This holds for groups of up to 24 members, which is the largest group size ever investigated in laboratory weakestlink games. The results suggest that the possibility of choosing interaction partners is a key mechanism to achieve efficient outcomes and to sustain them over time. This has important consequences for the design of efficient organizations.