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Abstract
This article is devoted to explaining why decision makers choose salient equilibria or focal points in pure coordination games - games in which players have identical preferences over the set of possible outcomes. Focal points, even when they arise as framing effects based on the labelling of options, are intuitively obvious choices, and experimental evidence shows that decision makers often coordinate successfully by choosing them. In response to arguments that focusing is not rationally justified, a psychological explanation and a conditional justification is offered in terms of a form of reasoning called the Stackelberg heuristic that has been used to explain the selection of payoff-dominant (Pareto-optimal) equilibria in common-interest games. Pure coordination games, if appropriately modelled, are shown to be reducible to common-interest games with payoff-dominant equilibria, and it is argued that focusing can therefore be explained by the Stackelberg heuristic.
Highlights
The aim of this article is to suggest a new explanation for the phenomenon of focal point selection, or what I shall call focusing, in pure coordination games
In a pure coordination game, the indirect argument could not on its own provide a method of finding the unique solution, even if there were one, because there are in general multiple Nash equilibria, and if the players chose strategies corresponding to different equilibria, the outcome might not be an equilibrium at all
I have shown that this interpretation is valid for games with payoff-dominant focal points in their raw payoff matrices, and to games whose focal points are invisible in their basic mathematical structures but emerge only from culturally determined framing effects
Summary
The aim of this article is to suggest a new explanation for the phenomenon of focal point selection, or what I shall call focusing, in pure coordination games. A focal point is often such a natural and obvious choice that even a child can see it; and for this reason it seems surprising that focusing should raise difficulties for rational choice theory and game theory The problem is both real and difficult, and it has attracted increasing attention from game theorists and experimental researchers in recent years (e.g., Bacharach 1993; Colman 1995: 33-40; Crawford and Haller 1990; Farrell 1987, 1988; Farrell and Gibbons 1989; Gauthier 1975; Gilbert 1989, 1990; Heal 1978; Mehta et al 1994a, 1994b; Sugden 1991, 1993, 1995a, 1995b; Young 1993).
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