New Equilibrium Concept in Common Agency Games Outperforms Traditional Predictions
In a common agency game, there are different ways principals can influence an agent's behavior. One way is called a truthful equilibrium, where each principal contributes positively to all options. Another way is a natural equilibrium, where each principal only contributes positively to one option. Natural equilibria are easier to find and predict than truthful equilibria. An experiment showed that the natural equilibrium was chosen in 65% of cases, while the truthful equilibrium was chosen less than 5% of the time.