Ten Isn’t Large! Group Size and Coordination in a Large-Scale Experiment

Abstract

We provide experimental evidence on coordination within large groups that could proxy the atomistic nature of real-world markets. We use a bank run game where the two pure-strategy equilibria can be ranked by payoff and risk dominance and a sequence of public announcements introduces stochastic sunspot equilibria. We find systematic group size effects that theory fails to predict. When the payoff-dominant strategy is risky enough, the behavior of small groups is uninformative of the behavior in large groups: unlike smaller groups of size ten, larger groups exclusively coordinate on the Pareto-inferior strategy and never coordinate on sunspots. (JEL C92, D83, D91, G21)