Coordination in complex environments

TL;DR

This paper investigates how coordination behaves in complex, uncertain environments using a game-theoretic model, revealing a new conformity phenomenon influenced by network structure.

Contribution

It introduces a novel conformity effect in complex environments and demonstrates how decentralized authority can achieve profit maximization under certain conditions.

Findings

Identifies a new conformity phenomenon affecting coordination.

Shows the influence of network structure on conformity and exploration.

Demonstrates profit maximization in decentralized organizations within complex environments.

Abstract

Coordination is an important aspect of innovative contexts, where: the more innovative a course of action, the more uncertain its outcome. To study the interplay of coordination and informational ``complexity'', I embed a beauty-contest game into a complex environment. I identify a new conformity phenomenon. This effect may push towards the exploration of unknown alternatives or constitute a status-quo bias, depending on the network structure of players' interactions. In an application, I show that an organization with decentralized authority can implement profit maximization in a sufficiently complex environment.