The Power of An Outside Option that Generates a Focal Point: An Experimental Investigation

Abstract

Existing experimental studies have shown that an outside option, when offered to one of the two players who later participate in a battle-of-the-sexes game, facilitates coordination by making the equilibrium that favors the same player focal. Since the other player’s payoff in the outside option was lower than that in the focal point, it is possible that there was a reciprocal motive of the other player to coordinate on the focal point. Then it is possible that the actual power of the outside option to generate the focal point was either lower or non-existent. The current paper reports results of an experiment designed to test for the focal point effect of the outside option by controlling for the reciprocal motive of the other player. The results confirm that the outside option can generate the focal point even when the reciprocal motive is absent. In fact, the saliency of the focal point is higher after controlling for reciprocity.