On the Role of Non-Equilibrium Focal Points as Coordination Devices

Abstract:     
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, C91

working papers series