School of Economics and Finance

No. 621: On the Role of Non-equilibrium Focal Points as Coordination Devices

Antoni Bosch-Domènech , Universitat Pompeu Fabra and CREA, Barcelona
Nicolaas J. Vriend , Queen Mary, University of London

February 1, 2008

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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.

J.E.L classification codes: C72, C91

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