CRED Lab – “Focal points and asymmetric payoffs”

by cp2530 on September 28, 2010

Title: CRED Lab – “Focal points and asymmetric payoffs”
Location: 417 Schermerhorn Hall
Description: Eric Schoenberg (Adjunct Associate Professor, Columbia Business School and Associate Director Center for the Decision Sciences) and
Dave Hardisty (Doctoral Student, Columbia University) will present preliminary data from a study in which individuals played a two-person stag hunt with asymmetric payoffs.

Focal points and asymmetric payoffs

The problem of coordination among economic agents is central to a large number of macroeconomic and microeconomic topics. The essential feature of games used to model these coordination problems is the existence of multiple Nash equilibria. Schelling (1960) first proposed that agents rely on psychologically salient “focal points” to coordinate behavior in these types of games, and suggested that these focal points might depend on any of a number of factors both exogenous and endogenous to the game itself.

Research has demonstrated that an exogenous factor which influences this choice process is the psychological saliency of the labels associated with different strategies (Mehta, Starmer and Sugden 1994), which can be remarkably efficient in aiding coordination. Crawford, Gneezy, and Rottenstreich (2008), however, demonstrate that these labels lose their effectiveness when they are associated with even small asymmetries in payoffs. The research plan presented here is designed to examine whether payoff asymmetries can also diminish the effectiveness of endogenous focal points such as Pareto-dominance and risk-dominance.
Start Time: 12:00
Date: 2010-09-30
End Time: 13:30

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