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American Economic Review Vol. 98 No. 4 2008

The Power of Focal Points Is Limited: Even Minute Payoff Asymmetry May Yield Large Coordination Failures

Vincent P. Crawford1; Uri Gneezy2; Yuval Rottenstreich3

1 Department of Economics, University of California, San Diego, La Jolla, CA 92093-0508. · 2 Rady School of Management, University of California, San Diego, La Jolla, CA 92093-0093. · 3 Stern School of Business, New York University, New York, NY 10014.

Abstract

Since Schelling, it has often been assumed that players make use of salient decision labels to achieve coordination. Consistent with previous work, we find that given equal payoffs, salient labels yield frequent coordination. However, given even minutely asymmetric payoffs, labels lose much of their effectiveness and miscoordination abounds. This raises questions about the extent to which the effectiveness of focal points based on label salience persists beyond the special case of symmetric games. The patterns of miscoordination we observe vary with the magnitude of payoff differences in intricate ways that suggest nonequilibrium accounts based on “level-k” thinking and “team reasoning.”

DOI
10.1257/aer.98.4.1443
Volume
98
Issue
4
Pages
1443-1458
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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