ROD GARRATT () (University of California, Santa Barbara, Department of Economics, Santa Barbara, CA 93106, USA) JAMES E. PARCO (United States Air Force Academy, Department of Management, Colorado Springs, CO 80840, USA) CHENG-ZHONG QIN (University of California, Santa Barbara, Department of Economics, Santa Barbara, CA 93106, USA) AMNON RAPOPORT (University of Arizona, Department of Management and Policy, Tucson, AZ 85721, USA; Department of Economics, Hong Kong University of Science and Technology, China)
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A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of weakly dominated strategies and strong/coalition-proof Nash equilibrium are also tested.
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