Correlated Strategies

Published by Mario Oettler on

Let’s consider the following pay-off matrix. This game is also known as “Chicken Game”. Here, two opponents drive in a car towards each other on a collision course. If nobody swerves, both die in the crash. If one player swerves both remain alive. But the one who swerved is taunted as a coward (chicken). The one who didn’t swerve receives the glory.

You can get an impression of how it works here:

Note: Part from Footloose 1984.

The point is that we have two equilibria [straight;swerve] and [swerve,straight]. But nobody actually has a huge incentive to reach it. If we introduce a random (independent) signal that tells each player what to do, but without forcing them, it can solve the coordination problem.  

The signal should be truly random to be accepted by the players, and it must be observable by both players.