Leading the game, losing the competition: identifying leaders and followers in a repeated game

Abstract

We explore a new method for identifying leaders and followers, LF, in repeated games by analyzing an experimental, repeated (50 rounds) game where Row player shifts the payoff between small and large values – a type of “investor” and Column player determines who gets the payoff – a type of “manager”. We found that i) the Investor (Row) most often is a leading player and the manager (Column) a follower. The longer the Investor leads the game, the higher is both player’s payoff. Surprisingly however, it is always the Manager that achieves the largest payoff. ii) The game has an efficient cooperative strategy where the players alternate in receiving a high payoff, but the players never identify, or accept, that strategy. iii) Under the assumption that the information used by the players is closely associated with the leader- follower sequence, and that information is available before the player’s decisions are made, the players switched LF- strategy primarily as a function of information on the Investor’s investment and moves and secondly as a function of the Manager’s payoff.