When the El Farol Bar Problem Is Not a Problem? The Role of Social Preferences and Social Networks

Shu-Heng Chen and Umberto Gostoli

In this paper, we study the self-coordination problem as demonstrated by the well-known El Farol Bar problem (Arthur, 1994), which later becomes what is known as the Minority Game in the econophysics community. While the El Farol problem or the minority game has been studied for almost two decades, existing studies are most concerned with efficiency only. The equality issue, however, has been largely neglected. In this paper, we build an agent-based model to study both efficiency and equality and ask whether a decentralized society can ever possibly self-coordinate a result with highest efficiency while also maintaining a highest degree of equality. Our agent-based model shows the possibility of achieving this social optimum. The two key determinants to make this happen are social preferences and social networks. Hence, not only does institution (network) matters, but individual characteristics (preferences) also matters. The latter part is open for human-subject experiments for further examination.

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