ASSET MARKETS AS AN EQUILIBRIUM SELECTION MECHANISM - COORDINATION FAILURE, GAME FORM AUCTIONS, AND TACIT COMMUNICATION

In this paper, we explore the possibility that asset markets provide a means of tacit communication, which may allow subjects to coordinate on the payoff-dominant equilibrium in an underlying coordination game. We find that the existence of a market price for the right to play does communicate information about the equilibrium selection problem. Specifically, behavior never converged to the efficient outcome when subjects were endowed with the right to participate, but always converged to the efficient outcome when subjects purchased the right to participate. Journal of Economic Literature Classification Numbers: C720, G120. © 1993 Academic Press. All rights reserved.