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.

Keywords: Coordination game, Focal point, Nash equilibrium, Equilibrium selection, Coordination device, LeeX

JEL Classification: C72, C91