Explaining Focal Points: Cognitive Hierarchy Theory versus Team Reasoning

Bardsley, Nicholas; Mehta, Judith; Starmer, Chris; Sugden, Robert

doi:10.1111/j.1468-0297.2009.02304.x

Cited by 163 publications

(182 citation statements)

References 20 publications

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“…The reason why the respondents chose this location was that it had a strong salience or prominence that led to a meeting of minds or mutual understanding of where to meet in the city. Schelling's findings from his experiments have been confirmed by many other researchers, 19 including Mehta, Starmer and Sugden (1994a;1994b), Bacharach and Bernasconi (1997), Crawford et al (2008), Bardsley et al (2010) and Isoni et al (2013).…”

Section: Tacit Collusionsupporting

confidence: 69%

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

Holland¹,

Rossouw

Staples

2015

SAJEMS

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The Competition Amendment Act introduced section 10A, which provides the Competition Commission with the powers to investigate complex monopoly conduct in a market and allows the Competition Tribunal, under certain conditions, to prohibit such behaviour. Although more than five years have elapsed since the Competition Amendment Act was promulgated, this provision has yet to come into force. However, when it eventually does so, it will mark a significant change in South African competition law, as it seeks to regulate firms' consciously parallel conduct. This is coordinated conduct that occurs without communication or agreement, but results in the prevention or substantial lessening of competition. Examples of horizontal tacit coordination practices include price leadership and facilitating practices, such as information exchanges and price signaling. The successful implementation of the amendment poses problems for the competition authorities in assessing the competitive effects of complex monopoly conduct and in providing effective remedies. Oligopoly markets result in mutual interdependent decision-making by firms, which can lead to market outcomes similar to explicit collusion.However, a further and little noticed issue is that firms in oligopolistic markets have opportunities to use focal points to determine coordinated strategies. This paper explores the nature and role of focal point pricing, which can lead to prices that are above competitive levels. The South African banking industry is used as an example. We find that focal point pricing is difficult to control, making the successful implementation of section 10A even more problematic. Moreover, the proposed amendment provides scope for the imposition of structural remedies by the Competition Tribunal, a function that the Competition Tribunal is ill-suited to perform.

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Section: Tacit Collusionsupporting

confidence: 69%

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

Holland¹,

Rossouw

Staples

2015

SAJEMS

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“…In spite of this vicious circle, the Hi-Lo game induces a powerful intuition in human decision makers that H is the rational choice, and experimental evidence confirms that virtually all players choose it (Bardsley, Mehta, Starmer, & Sugden, 2010). What accounts for this phenomenon?…”

Section: Payoff Dominancementioning

confidence: 99%

“…She showed that a player has no reason at all to choose a strategy associated with a salient focal point in the absence of an independent reason to expect the co-player to choose it. Furthermore, any attempt to derive, from the standard assumptions, a reason to expect a coplayer to choose it generates a version of the vicious circle discussed above without leading to any conclusion, and this is now generally acknowledged by game theorists (e.g., Anderlini, 1999;Aumann & Sorin, 1989;Bacharach, 2006, Chapter 1;Bardsley et al, 2010;Janssen, 2001Janssen, , 2006.…”

Section: Two Common Fallaciesmentioning

confidence: 99%

Team reasoning: Solving the puzzle of coordination

Colman

Gold

2017

Psychon Bull Rev

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In many everyday activities, individuals have a common interest in coordinating their actions. Orthodox game theory cannot explain such intuitively obvious forms of coordination as the selection of an outcome that is best for all in a common-interest game. Theories of team reasoning provide a convincing solution by proposing that people are sometimes motivated to maximize the collective payoff of a group and that they adopt a distinctive mode of reasoning from preferences to decisions. This also offers a compelling explanation of cooperation in social dilemmas. A review of team reasoning and related theories suggests how team reasoning could be incorporated into psychological theories of group identification and social value orientation theory to provide a deeper understanding of these phenomena.Keywords Common knowledge . Cooperation . Coordination . Game theory . Group identification . Social dilemma . Social value orientation . Team reasoning Near the end of the 1960 movie Spartacus, directed by Stanley Kubrick, a Roman general addresses a group of slaves who have been captured after rising up in revolt, offering to spare them and return them to slavery if they identify their leader, Spartacus. To save his comrades, Spartacus (played by Kirk Douglas) rises to his feet and declares: BI am Spartacus.^Immediately and without any discussion among themselves, the other slaves stand up one by one, also claiming BI am Spartacus,^thereby preventing the Roman general from singling out their leader or anyone else for special punishment. This is a dramatic example of coordination, one of the most fundamental processes of social interaction, manifested whenever two or more individuals try to align their actions with one another in order to achieve a common goal.Coordination is an elementary form of cooperation, relatively neglected by researchers, perhaps partly because it is so familiar and commonplace, but it is beginning to attract attention (e.g., Thomas, Scioli, Haque, & Pinker, 2014). Surprisingly, because it seems so simple and obvious, it turns out to be inexplicable by orthodox game theory, a highly developed theory designed precisely to explain interactive decision making. Coordination thus appears to be a classic example of the type of phenomenon referred to by Heider (1958), in which Bthe veil of obviousness that makes so many insights of intuitive psychology invisible to our scientific eye has to be pierced( p. 7). In this article, we show how theories of team reasoning solve this problem convincingly and also provide a compelling explanation for cooperation in social dilemmas. We review the literature on team reasoning, including theoretical issues and experimental evidence, and, for the sake of balance and completeness, we discuss more briefly the principal competing theories of coordination and related theories of social psychology. We show how certain psychological theories could be strengthened significantly by incorporating team reasoning. Before going into details about these issues, it is ne...

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“…Bardsley et al (2010), for instance, provide evidence of a correlation between choices in coordination games and a postexperiment questionnaire on favourites.…”

Section: The Rulesmentioning

confidence: 99%

“…Bacharach and Bernasconi (1997) and Bardsley et al (2010) find some support for such choices: e.g. Mannheim was chosen in the set {Mannheim, Berlin, Brussels, Lisbon, Madrid} and glass in the set {glass, diamond, emerald, sapphire}.…”

Section: The Rulesmentioning

confidence: 99%

Coordination when there are restricted and unrestricted options

2017

Self Cite

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One might expect that, in pure coordination games, coordination would become less frequent as the number of options increases. Contrary to this expectation, we report an experiment which found more frequent coordination when the option set was unrestricted than when it was restricted. To try to explain this result, we develop a method for eliciting the general rules that subjects use to identify salient options in restricted and unrestricted sets. We find that each such rule, if used by all subjects, would generate greater coordination in restricted sets. However, subjects tend to apply different rules to restricted and unrestricted sets.Keywords Coordination · Salience · Focal points · Odd-one-out · Typicality · Prototypicality JEL Classification C72 (noncooperative games) · C78 (bargaining theory, matching theory) · C91 (design of experiments: laboratory, group behaviour)We thank participants in many conferences and seminars for comments on earlier versions of this paper. Electronic supplementary material The online version of this article

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Explaining Focal Points: Cognitive Hierarchy Theory versus Team Reasoning

Cited by 163 publications

References 20 publications

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

Focal point pricing: A challenge to the successful implementation of Section 10a (introduced by the Competition Amendment Act)

Team reasoning: Solving the puzzle of coordination

Coordination when there are restricted and unrestricted options

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