The Power of Focal Points is Limited: Even Minute Payoff Asymmetry May Yield Large Coordination Failures,” in preparation

Thomas C. Schelling’s (1960) seminal experiments are an important landmark in the study of coordination. Schelling asked subjects to choose independently and without communication where in New York City they would try to meet one another. Those who chose the same meeting location as their partner would receive a positive (hypothetical) payoff, equal to that of their part-ner’s and independent of the specific location. Those who did not would receive a zero payoff. Despite the plethora of possible meeting locations, a majority of subjects chose Grand Central Station, which was the most salient traffic hub in New York at the time, yielding a high expected coordination rate. On the basis of his results, Schelling concluded that even though traditional game theory allows no role for the salience of decision labels, many situations “provide some clue for coordinating behavior, some focal point for each person’s expectations of what the other expects him to be expected to do ” (1960, 57). In this paper we use the term “focal point ” in the sense of the passage just quoted, to refer to coordination brought about (at least partly) by exploit-ing the salience of decision labels.1 Much experimental work has since corroborated and extended Schelling’s results on the effec-tiveness of focal points. In particular, a number of researchers have observed high expected coordination rates in games with salient decision labels and symmetric, constant payoffs (Judith Mehta, Chris Starmer, and Robert Sugden 1994a, b; Michael Bacharach and Michele Bernasconi 1997; Nicholas Bardsley et al. 2006). Furthermore, since Schelling’s investigation, it has usually been assumed that players can also exploit the salience of decision labels to achieve coordina-tion in games with moderately asymmetric payoffs. As Sugden (1995, 548) states, “[a]lthough it 1 Schelling also considered focal points derived entirely from the payoff structure, or from preplay communica-tion or precedents based on shared history. Traditional game theory excludes decision labels and other aspects of the framing of the game from consideration by fiat. It focuses instead on the payoff structure, which leads to payoffs-base