On the Role of Non-Equilibrium Focal Points as Coordination Devices
Antoni Bosch i Domènech
Universitat Pompeu Fabra - Faculty of Economic and Business Sciences
Nicolaas J. Vriend
Queen Mary, University of London - Department of Economics
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.
Number of Pages in PDF File: 50
Keywords: Coordination game, Focal point, Nash equilibrium, Equilibrium selection, Coordination device, LeeX
JEL Classification: C72, C91working papers series
Date posted: March 18, 2008
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