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Explaining Focal Points: Cognitive Hierarchy Theory versus Team Reasoning

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Author Info

  • Nicholas Bardsley

    (National Centre for Research Methods, University of Southampton)

  • Judith Mehta

    (School of Economics, University of East Anglia)

  • Chris Starmer

    (CeDEx, University of Nottingham)

  • Robert Sugden

    (School of Economics, University of East Anglia)

Abstract

This paper reports experimental tests of two alternative explanations of how players use focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory explains coordination as the result of common beliefs about players’ pre-reflective inclinations towards the relevant strategies; the theory of team reasoning explains it as the result of the players’ using a non-standard form of reasoning. We report two experiments. One finds strong support for team reasoning; the other supports cognitive hierarchy theory. In the light of additional questionnaire evidence, we conclude that players’ reasoning is sensitive to the decision context.

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Bibliographic Info

Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2008-17.

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Date of creation: Dec 2008
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Handle: RePEc:not:notcdx:2008-17

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
Phone: (44) 0115 951 5620
Fax: (0115) 951 4159
Web page: http://www.nottingham.ac.uk/economics/cedex/
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Keywords: salience; focal point; cognitive hierarchy; team reasoning;

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References

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  1. Bacharach, Michael, 1999. "Interactive team reasoning: A contribution to the theory of co-operation," Research in Economics, Elsevier, vol. 53(2), pages 117-147, June.
  2. Sugden, Robert & Zamarron, Ignacio E., 2006. "Finding the key: The riddle of focal points," Journal of Economic Psychology, Elsevier, vol. 27(5), pages 609-621, October.
  3. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-32, Nov.-Dec..
  4. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  5. Bacharach, Michael & Stahl, Dale O., 2000. "Variable-Frame Level-n Theory," Games and Economic Behavior, Elsevier, vol. 32(2), pages 220-246, August.
  6. Sugden, Robert, 1995. "A Theory of Focal Points," Economic Journal, Royal Economic Society, vol. 105(430), pages 533-50, May.
  7. Cubitt, Robin P. & Sugden, Robert, 2003. "Common Knowledge, Salience And Convention: A Reconstruction Of David Lewis' Game Theory," Economics and Philosophy, Cambridge University Press, vol. 19(02), pages 175-210, October.
  8. Crawford, Vincent P & Haller, Hans, 1990. "Learning How to Cooperate: Optimal Play in Repeated Coordination Games," Econometrica, Econometric Society, vol. 58(3), pages 571-95, May.
  9. Binmore, Ken & Samuelson, Larry, 2006. "The evolution of focal points," Games and Economic Behavior, Elsevier, vol. 55(1), pages 21-42, April.
  10. Maarten Janssen, 2001. "Rationalizing Focal Points," Theory and Decision, Springer, vol. 50(2), pages 119-148, March.
  11. Bacharach, Michael & Bernasconi, Michele, 1997. "The Variable Frame Theory of Focal Points: An Experimental Study," Games and Economic Behavior, Elsevier, vol. 19(1), pages 1-45, April.
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Citations

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Cited by:
  1. Antoni Bosch-Dom�nech & Nicolaas J. Vriend, 2008. "On the Role of Non-equilibrium Focal Points as Coordination Devices," Working Papers 621, Queen Mary, University of London, School of Economics and Finance.
  2. Sugden, Robert, 2011. "Salience, inductive reasoning and the emergence of conventions," Journal of Economic Behavior & Organization, Elsevier, vol. 79(1), pages 35-47.
  3. Alberti, Federica & Sugden, Robert & Tsutsui, Kei, 2012. "Salience as an emergent property," Journal of Economic Behavior & Organization, Elsevier, vol. 82(2), pages 379-394.
  4. Lahno, Amrei M. & Lahno, Bernd, 2014. "Team Reasoning as a Guide to Coordination," Discussion Papers in Economics 20822, University of Munich, Department of Economics.
  5. Heinemann, Frank & Llorente-Saguer, Aniol & Fehr, Dietmar, 2011. "The Power of Sunspots: An Experimental Analysis," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48724, Verein für Socialpolitik / German Economic Association.
  6. Pelle Hansen & David Rojo Arjona, 2011. "Prune or cut down: salience and Sugden’s The Economics of Rights, Co-operation and Welfare," International Review of Economics, Springer, vol. 58(1), pages 53-78, March.
  7. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2013. "Structural Models of Nonequilibrium Strategic Thinking: Theory, Evidence, and Applications," Journal of Economic Literature, American Economic Association, vol. 51(1), pages 5-62, March.
  8. Jim Engle-Warnick & Sonia Laszlo & Natalia Mishagina & Erin Strumpf, 2013. "Coordination, Common Knowledge and an H1N1 Outbreak," CIRANO Working Papers 2013s-10, CIRANO.
  9. Anders Poulsen & Odile Poulsen & Zoe Bett, 2013. "How Salient is an Equal but Inefficient Outcome in a Coordination Situation? Some Experimental Evidence," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 13-02, School of Economics, University of East Anglia, Norwich, UK..
  10. Marco Faillo & Alessandra Smerilli & Robert Sugden, 2013. "The roles of level-k and team reasoning in solving coordination games," CEEL Working Papers 1306, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  11. Isoni, Andrea & Poulsen, Anders & Sugden, Robert & Tsutsui, Kei, 2013. "Focal points in tacit bargaining problems: Experimental evidence," European Economic Review, Elsevier, vol. 59(C), pages 167-188.
  12. Shaun Hargreaves Heap & David Rojo Arjona & Robert Sugden, 2012. "A Popperian test of level-k theory," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 12-06, School of Economics, University of East Anglia, Norwich, UK..
  13. Bizer, Kilian & Meub, Lukas & Proeger, Till & Spiwoks, Markus, 2014. "Strategic coordination in forecasting: An experimental study," Center for European, Governance and Economic Development Research Discussion Papers 195, University of Goettingen, Department of Economics.
  14. Lahno, Amrei Marie & Lahno, Bernd, 2014. "Team Reasoning as a Guide to Coordination," MPRA Paper 55670, University Library of Munich, Germany.
  15. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
  16. Ellingsen, Tore & Johannesson, Magnus & Mollerstrom, Johanna & Munkhammar, Sara, 2012. "Social framing effects: Preferences or beliefs?," Games and Economic Behavior, Elsevier, vol. 76(1), pages 117-130.
  17. Federica Alberti & Edward J. Cartwright, 2011. "Full agreement and the provision of threshold public goods," Jena Economic Research Papers 2011-063, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  18. Luca Corazzini, Christopher Cotton, Paola Valbonesi, 2012. "Salience, Coordination and Cooperation in Contributing to Threshold Public Goods," ISLA Working Papers 44, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.

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