Social, Behavioral and Experimental Economics & Economic Theory Seminar: Victoria Prowse, Purdue University

Dynamic Investment in Teamwork Skill: Theory and Experimental Evidence

Abstract

This paper investigates how individuals develop teamwork skills through dynamic investment, and under what conditions such investments emerge and persist. We design a repeated two-stage laboratory game in which individuals choose whether to invest in team skill—an investment that increases payoffs from future team coordination—and then choose between a team task and an individual task in a Stag Hunt environment. Our theoretical model characterizes the subgame-perfect equilibria of this dynamic game. It predicts multiple equilibria, including one in which players always choose the safe individual task and never invest, and another in which players coordinate on the team task and invest when the dynamic benefits outweigh the cost. The model further predicts that investment declines as the end of the interaction approaches due to the diminishing value of future coordination, and that underinvestment arises even in efficient equilibria due to uninternalized externalities.

We experimentally test these predictions and find strong support for the model: investment increases in the marginal return to investment, declines across rounds, and responds discontinuously when equilibrium behavior switches from no-investment to investment. Strategic uncertainty shapes behavior, with coordination more likely when the basin of attraction for investment is large. Cognitive ability, theory of mind, and a subject’s measured willingness to coordinate all positively predict investment, particularly when theory suggests such behavior is equilibrium consistent. The findings enrich understanding of coordination under dynamic incentives and extend equilibrium analysis in games of skill formation.

About the SBEE Seminar Series

The Social, Behavioral and Experimental Economics seminar series brings together a community of economics scholars from three units at the University of Michigan — the School of Information, the Department of Economics and the Ross Business School — whose research aims to broaden the understanding of the social, economic and political consequences of real-life decisions and behaviors.

Top researchers from around the globe come to Michigan to present their work at the SBEE seminar series, exploring the intersection of economics, psychology, computer science and information science.

The seminar series is organized by U-M faculty members Yan Chen (UMSI), Alain Cohn (UMSI), Erin Krupka (UMSI), Stephen Leider (Ross), Christine Exley (Econ), A. Yesim Orhun (Ross), Tanya Rosenblat (UMSI), Karthik Srinivasan (UMSI) and Basit Zafar (Econ). Todd Stuart serves as seminar coordinator.