Bidding patterns reveal whether a payoff functions as coordination signal or insurance.

Evidence

If, for example, he bids 9.50 for a chance to play the game in Fig. 33 (implying, perhaps, a 90 percent expectation that Column will choose II), 8.65 for the game with 5 replaced by 1 (implying an 85 percent expectation of II), and 9.95 for the game with 5 replaced by 9 (implying a 95 percent expectation of II), and, finally, 5 for the game as in Fig. 32 (implying a random expectation as between I and II), we could conclude that the function, or value to the player, of the upper-right and lower-left payoffs is largely that of coordinating clue. If instead he bids amounts that imply probabilities between I and II that are invariant, or nearly so, with respect to the upper-right and lower-left payoffs, and particularly if he bids the arithmetic mean, the insurance interpretation would be indicated. — Thomas C. Schelling, The Strategy of Conflict, 871

Categorization

• XREF: This operational test parallels how Gambetta’s private-protection market distinguishes genuine deterrence value from mere signaling value of the Godfather’s reputation. — connects to: Insurance and coordination-clue motives can be operationally distinguished by bidding tests. — Thomas C. Schelling, The Strategy of Conflict, 871

Related

• Insurance and coordination-clue motives can be operationally distinguished by bidding tests. (similarity 0.92)