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The Power of Focal Points is Strong: Coordination Games with Labels and Payoffs

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  • Bodoff, David

Abstract

People’s ability to coordinate on salient labels has been widely reported since Schelling. However, it is not known how players behave when label salience conflicts with payoff dominance. We consider such games by independently varying the two elements, focusing especially on cases where the two criteria conflict. We also introduce a new form of the game, in which players choose labeled strategies in response to a stimulus. In games with no reference stimulus, behavior is consistent with a simple model, according to which strategic players assume their naïve counterparts choose the higher payoff. In games with a reference stimulus, behavior is consistent with a model in which strategic players assume their naïve counterparts choose the label that is more salient to them, except perhaps where the two labels’ salience are very similar, in which case the higher payoff is chosen. A key finding is that in the presence of a stimulus, play is best explained by a model in which players choose according to label salience, even against the combination of payoff and risk dominance.

Suggested Citation

  • Bodoff, David, 2020. "The Power of Focal Points is Strong: Coordination Games with Labels and Payoffs," MPRA Paper 102213, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:102213
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    File URL: https://mpra.ub.uni-muenchen.de/102213/1/MPRA_paper_102213.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    coordination games; focal points; cognitive hierarchy;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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