title: The agencies method for coalition formation in experimental games.
abstract: In society, power is often transferred to another person or group. A previous work studied the evolution of cooperation among robot players through a coalition formation game with a non-cooperative procedure of acceptance of an agency of another player. Motivated by this previous work, we conduct a laboratory experiment on finitely repeated three-person coalition formation games. Human players with different strength according to the coalition payoffs can accept a transfer of power to another player, the agent, who then distributes the coalition payoffs. We find that the agencies method for coalition formation is quite successful in promoting efficiency. However, the agent faces a tension between short-term incentives of not equally distributing the coalition payoff and the long-term concern to keep cooperation going. In a given round, the strong player in our experiment often resolves this tension approximately in line with the Shapley value and the nucleolus. Yet aggregated over all rounds, the payoff differences between players are rather small, and the equal division of payoffs predicts about 80% of all groups best. One reason is that the voting procedure appears to induce a balance of power, independent of the individual player's strength: Selfish subjects tend to be voted out of their agency and are further disciplined by reciprocal behaviors.
authors.affiliation: Departments of Mathematics and Economics, Princeton University, Princeton, NJ 08544, USA. xkjfnj@princeton.edu
authors.forename: John F
authors.initials: JF
authors.lastname: Nash
authors.forename: Rosemarie
authors.initials: R
authors.lastname: Nagel
authors.forename: Axel
authors.initials: A
authors.lastname: Ockenfels
authors.forename: Reinhard
authors.initials: R
authors.lastname: Selten