Munich Personal RePEc Archive

Focal Points Revisited: Team Reasoning, the Principle of Insufficient Reason and Cognitive Hierarchy Theory

Bardsley, Nicholas and Ule, Aljaz (2014): Focal Points Revisited: Team Reasoning, the Principle of Insufficient Reason and Cognitive Hierarchy Theory.

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Abstract

Coordination on focal points in one shot games can often be explained by team reasoning, a departure from individualistic choice theory. However, a less exotic explanation of coordination is also available based on best-responding to uniform randomisation. We test the team reasoning explanation experimentally against this alternative, using coordination games with variable losses in the off-diagonal cells. Subjects’ responses are observed when the behaviour of their partner is determined in accordance with each theory, and under game conditions where behaviour is unconstrained. The results are more consistent with the team reasoning explanation. Increasing the difficulty of the coordination tasks produces some behaviour suggestive of response to randomisation, but this effect is not pronounced.

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