Abstract Starting from Schelling (1960), several game theorists have conjectured that
payoff equity might facilitate coordination in normal-form games with multiple equilibria
– the more equitable equilibrium might be selected either because fairness makes it
focal or because many individuals dislike payoff inequities, as abundant experimental
evidence suggests. In this line, we propose a selection principle called Equity (EQ),
which selects the equilibrium in pure strategies minimizing the difference between
the highest and smallest money payoff, if only one such equilibrium exists. Using
a within-subjects experimental design, furthermore, we study the relative performance
of EQ in twelve simple 2 × 2 coordination games. In many of these games, we find that
EQ explains individual behavior better than a large range of alternative theories,
including theories of bounded rationality and several other equilibrium selection
principles. Yet we also observe that the frequency of EQ play depends on the payoff
structure of the game. For instance, EQ play diminishes when the alternative equilibrium
is socially efficient and not very unfair (compared with the EQ equilibrium). Our
data suggests that equilibrium selection is affected by several factors and that subjects
are heterogeneous in this respect, but also that equity is often a crucial factor
to understand coordination.
