Group behaviour in tacit coordination games with focal points – an experimental investigation

This paper reports an experimental investigation of Schelling’s theory of focal points that compares group and individual behaviour. We find that, when players’ interests are perfectly aligned, groups more often choose the salient option and achieve higher coordination success than individuals. However, in games with conflicts of interest, groups do not always perform better than individuals, especially when the degree of conflict is substantial. We also find that groups outperform individuals when identifying the solution to the coordination problem requires some level of cognitive sophistication. Finally, players that successfully identify the solution to this game also achieve greater coordination rates than other players in games with a low degree of conflict. This result raises the question of whether finding the focal point is more a matter of logic rather than imagination as Schelling argued

Mathematics self-confidence and the "prepayment effect" in riskless choices

We extend the analysis of a riskless choice experiment reported recently by Hochman et al. (2014). Participants select from among sets of standard playing cards valued by a simple formula. In some sessions, participants are given a prepayment associated with some of the cards, which need not be the earnings-maximizing ones. Hochman et al. find that participants choose an earnings-maximizing card less frequently when another card is prepaid. We replicate this result under the original instructions, but not with instructions which explain the payment process more explicitly. Participants who state they do not consider themselves good at mathematics make earnings-maximizing choices much less frequently overall, but those who express self-confidence in mathematics drive the treatment effect. The results suggest that even when comparisons among choices require only simple quantitative reasoning steps, market designers and regulators may need to pay close attention to how the terms of offers are expressed, explained, and implemented

Compound games, focal points, and the framing of collective and individual interests

This study introduces the concept of “compound games” and investigates whether the decomposition of a game – when implemented – influences behaviour. For example, we investigate whether separating battle of the sexes games into a pure coordination component and the remaining battle of the sexes component changes coordination success. The literature attributes high coordination rates in pure coordination games with focal points to team reasoning and low coordination rates in related battle of the sexes games to level-k reasoning. We find that coordination success in compound games depends on the decomposition and order of component games

Overcoming coordination failure in games with focal points: An experimental investigation

We experimentally test whether increasing the salience of payoff-irrelevant focal points (Schelling, 1960) can counteract the negative impact of conflicts of interest on coordination. The intuition is that, in the presence of conflict, the solution to the coordination dilemma offered by the focal point loses importance. Increasing its salience increases its relevance and, therefore, coordination success. When we vary label salience between subjects, we find support for this conjecture in games with a constant degree of conflict, similar to battle of the sexes games, but not in games that feature outcomes with different degrees of payoff inequality and efficiency. In an additional experiment in which we vary label salience within subjects, choices are found not to be affected by our salience manipulation. Yet, the proportion of choices consistent with the focal point is significantly greater than that in the between-subject design

Overcoming coordination failure in games with focal points:An experimental investigation

Focal points (Schelling, 1960) have shown limitations as coordination devices in games with conflict, such as the battle of the sexes games. We experimentally test whether an increase in their salience can counteract the negative impact of conflict on coordination. The intuition is that, in the presence of conflict, the solution to the coordination dilemma offered by the focal point loses importance. Increasing its salience increases its relevance and therefore coordination success. Our results provide strong support for this conjecture. Furthermore, when games feature outcomes with different degrees of payoffs’ inequality (i.e. the difference of players’ payoffs) and efficiency (i.e. the sum of players’ payoffs), increasing salience does not lead to an obvious increase in coordination, unless the salience of the focal point is maximal

Heterogeneity in Preferences towards Complexity

We analyze lottery-choice data in a way that separately estimates the effects of risk aversion and complexity aversion. Complexity is represented by the number of different outcomes in the lottery. A finite mixture random effects model is estimated which assumes that a proportion of the population are complexity-neutral. We find that around 33% of the population are complexity-neutral, around 50% complexity-averse, and the remaining 17% are complexity-loving. Subjects who do react to complexity appear to have a bias towards complexity aversion at the start of the experiment, but complexity aversion reduces with experience, to the extent that the average subject is (almost) complexity-neutral by the end of the experiment. Complexity aversion is found to increase with age and to be higher for non-UK students than for UK students. We also find some evidence that, when evaluating complex lotteries, subjects perceive probabilities in accordance with Prospective Reference Theory

Inattentive Consumers in Markets for Services

In an experiment on markets for services, we find that consumers are likely to stick to default tariffs and achieve suboptimal outcomes. We find that inattention to the task of choosing a better tariff is likely to be a substantial problem in addition to any task and tariff complexity effect. The institutional setup on which we primarily model our experiment is the UK electricity and gas markets, and our conclusion is that the new measures by the UK regulator Ofgem to improve consumer outcomes are likely to be of limited impact