Coordination games with Pareto-ranked equilibria have attracted major attention over the past two decades. Two early path-breaking sets of experimental studies were widely interpreted as suggesting that coordination failure is a common phenomenon in the laboratory. We identify the major determinants that seem to affect the incidence, and/or emergence, of coordination failure in the lab and review critically the existing experimental studies on coordination games with Pareto-ranked equilibria since that early evidence emerged. We conclude that there are many ways to engineer coordination successes.

We examine repetition as an institution that affects coordination failure in a game with and without pre-play communication. We use probit regression with random effects to test hypotheses regarding the frequency and form of coordination failure in the presence of repeated play versus one-shot games. Our results indicate that repetition without pre-play communication results in a lower frequency of coordination failure relative to one-shot game outcomes. This result is reversed when pre-play communication is allowed. Our evidence also suggests that repeated play coordination failures tend to be suboptimal Nash equilibria, whereas one-shot game coordination failures are disequilibria regardless of the presence of pre-play communication.

We examine three tools that can enhance coordination success in a repeated multiple-choice coordination game. Gradualism means that the game starts as an easy coordination problem and moves gradually to a more difficult one. The Endogenous Ascending mechanism implies that a gradual increase in the upper bound of coordination occurs only if coordination with the Pareto superior equilibrium in a stage game is attained. The Endogenous Descending mechanism requires that when the game’s participants fail to coordinate, the level of the next coordination game be adjusted such that the game becomes simpler. We show that gradualism may not always work, but in such instances, its effect can be reinforced by endogeneity. Our laboratory experiment provides evidence that a mechanism that combines three tools, herein termed the “Gradualism with Endogenous Ascending and Descending (GEAD)” mechanism, works well. We discuss how the GEAD mechanism can be applied to real-life situations that suffer from coordination failure.

We investigate the effectiveness of two leadership institutions in each of two games: a weakest link and a linear public good game. An “Exemplar” leader is a first mover who commits to a level of contribution; a “Manager” is a first mover who makes cheap talk suggestions to the team members. Our results show that both leadership institutions reduce coordination failures as compared to a simultaneous move, baseline scenario with no leader. Although the Manager treatment seems to be slightly more effective at the outset, both leadership institutions significantly and equally improve contributions in the coordination game over time. According to our results none of the leadership institutions seem effective in the linear public good game. This may be due to the fact that our marginal per capita return is rather large, keeping the contribution levels high regardless of the treatment. Subjects who choose to free ride continue to do so with or without leaders, and subjects who choose to be cooperative do not become discouraged by others’ lack of cooperation. These results both replicate earlier findings and allow direct comparison across similar games.

Players often fail to coordinate on the efficient equilibrium in laboratory weak-link coordination games. In this paper, we investigate whether such coordination failures can be mitigated by increasing the number of rounds or altering per-period stakes. We find that neither time horizon nor stakes affect equilibrium selection. In contrast to previous findings, players are not more likely to play above the previous period’s minimum choice when the horizon is longer or per-period stakes lower. We also investigate which socio-demographic factors and behavioral traits correlate most strongly with play both in the first round and in subsequent rounds. Cognitive ability as measured by a cognitive reflection test stands out as the characteristic that is most strongly associated with efficient coordination.

The market economy is modeled as a decentralized joint production system. Markets in such an economy require the use of money or credit instruments to facilitate exchange. As a result, market economies are at risk for monetary instability induced by real-side production coordination failure. In particular, economies decentralized via centralized wholesaling markets are subject to precipitous collapses. The most stable monetary system is trade in specie. However, there very likely is a scarcity of specie, which generates inefficiency and discourages production. There is, then, a need for an elastic currency. Bank-issued bills of exchange are a perfectly elastic medium and eliminate the scarcity of specie and its attendant inefficiency, but are a less stable monetary system than is trade in specie. In the trade-off between elasticity and stability, fiduciary currency (or fiduciary deposits) lies between specie and bank-issued bills of exchange.

Axel Leijonhufvud made an enormous impact on macroeconomics in the late 1960s with the publication of his book On Keynesian Economics and the Economics of Keynes: A Study of Monetary Economics (1968). In this famous book, Leijonhufvud argued that the standard neoclassical synthesis (Hicks–Hansen IS-LM) interpretation of the General Theory totally misunderstood and misinterpreted Keynes. However, during the 1970's, interest in Keynes and Keynesian models waned as new classical equilibrium models became all the rage. Nevertheless, Leijonhufvud, from a position outside the mainstream, continued his research into problems of unemployment, business cycles, and inflation—issues that from his perspective are problems of coordination failure in complex dynamical systems. Axel Leijonhufvud is currently Professor Emeritus at the University of California, Los Angeles, and, since 1995, Professor of Monetary Economics at the University of Trento, Italy. In this interview the author discusses with Leijonhufvud a wide range of issues relating to his own work as well as his views on the development of macroeconomics after Keynes.