Efficiency gains through social influence in a minimum effort game

Abstract

We explore the role of social influence in coordinating effort choice in a game with strategic complementarities. Agents are repeatedly randomly partitioned into groups to play a minimum effort game and choose their effort based on their beliefs about the minimal effort among the other group members. Individual expectations about this minimal effort are influenced by their own experience and by communication of beliefs within a social network. We show that increasing the importance of social influence in the expectation formation process has positive effects on the emerging (long-run) effort level, thereby improving the efficiency of the outcome. Furthermore, a more centralized social network leads to higher average efficiency, but also to increased variance of outcomes. Communication of actual minimum effort cannot replace the communication of beliefs as a device fostering the emergence of high long-run effort.