On the Role of Non-Equilibrium Focal Points as Coordination Devices
50 Pages Posted: 18 Mar 2008
Date Written: February 2008
Considering a pure coordination game with a large number of equivalent equilibria, we argue, first, that a focal point that is itself not a Nash equilibrium and is Pareto dominated by all Nash equilibria, may attract the players' choices. Second, we argue that such a non-equilibrium focal point may act as an equilibrium selection device that the players use to coordinate on a closely related small subset of Nash equilibria. We present theoretical as well as experimental support for these two new roles of focal points as coordination devices.
Keywords: Coordination game, Focal point, Nash equilibrium, Equilibrium selection, Coordination device, LeeX
JEL Classification: C72, C91
Suggested Citation: Suggested Citation