Chapter 56 Focal Points and Bargaining

Abstract

Publisher Summary This chapter focuses on the focal points and bargaining. The idea of a focal point is of great practical importance. However, no consensus exists concerning the manner in which focal points become established or survive after their establishment. At one extreme, some authors emphasize rationality considerations above all else. At the other extreme are authors who argue that social norms are so important that strategic issues can be neglected entirely. Even those who emphasize the importance of social norms are left with unresolved questions. Subjects can be conditioned to begin bargaining against real opponents close to any of the four focal points discussed in the chapter. The equal increments and utilitarian focal points are not stable. The explanation that groups of subjects converge on an exact Nash equilibrium of the discrete game that they actually played fits the data very well. One potential criticism of the above experiments is that the graphical display might have made the process of myopic optimization focal.