Explaining Focal Points: Cognitive Hierarchy Theory "versus" Team Reasoning

Nicholas Bardsley, Judith Mehta, Chris Starmer and Robert Sugden

Economic Journal, 2010, vol. 120, issue 543, 40-79

Abstract: This article 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. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Date: 2010
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