Media Briefings

Meeting Of Minds: Explaining How Groups Of People Converge On ‘Focal Points’

  • Published Date: March 2010

New research by a group of experimental economists provides the first hard evidence of ‘team reasoning’ – the idea that that a group of people can reason jointly, as if they were a single agent. Writing in the March 2010 Economic Journal, Professor Robert Sugden and his colleagues report the results of their work, which tries to explain the remarkable human ability to converge on ‘focal points’.

Their experiments show how by reasoning jointly, pairs of players can use a common perception to ensure coordination of their actions. While the results are not conclusive, they say that: ‘It is just possible that we are beginning to solve a problem that has perplexed economists and game theorists for half a century.’

Focal points are best illustrated by an example. Suppose you are asked to choose a word to complete the sentence ‘The coin was tossed and fell…’. Another person, with whom you cannot communicate, has been asked the same question. If you both choose the same word, each of you will win some money.

In a brilliant book published in 1960, Thomas Schelling showed that people are remarkably proficient at solving problems of this kind (the vast majority say that the coin fell ‘heads’). He argued that this human ability to converge on ‘focal points’ is crucial for many real-life problems, right up to decisions by the leaders of nuclear-armed nations about the limitation or escalation of warfare.

Ever since, game theorists have acknowledged the importance of this idea, and Schelling won a Nobel Prize in 2005 for his contributions to game theory. But no explanation of how people identify focal points has so far found general acceptance.

Recent attempts at explanation have taken two different tracks. One approach – ‘cognitive hierarchy theory’ – proposes that people differ in their capacity for strategic thinking. Faced with one of Schelling’s games, a naïve player just picks whatever first comes to mind. A slightly sophisticated player tries to guess what would come to mind for a naïve player. More sophisticated players try to guess what slightly sophisticated players would guess – and so on.

A rival approach – the theory of ‘team reasoning’ – develops one of Schelling’s own intuitions. It proposes that when two players face a Schelling game, each of them tries to find the general rule which, if followed by both of them, would be most likely to ensure coordination. This theory differs from most theories in economics by suggesting that a group of people can reason jointly, as if they were a single agent.

This study reports an experiment that pits these approaches against one another. The essential idea is illustrated by the following example:

  • One group of participants – the ‘pickers’ – were asked just to pick one of ‘Bern’, ‘Barbados’, ‘Florida’ and ‘Honolulu’; they were given no explanation of this odd task.
  • Another group – the ‘guessers’ – were asked to guess which of the four destinations a picker had picked.
  • In a third group, pairs of ‘coordinators’ played a Schelling game in which the objective was to choose the same one of the four destinations.

Among pickers and guessers, Florida was the most frequent choice, while Bern was chosen by only 22%. Given this information, cognitive hierarchy theory predicts that coordinators will predominantly choose Florida. But in fact Bern was easily the most frequent choice of coordinators, chosen by 52%.

Why the difference? Florida comes to mind to the participants as the most preferred of the four destinations, but Bern is perceived as the odd one out. By reasoning jointly, a pair of players can use this common perception to ensure coordination.

The researchers presented many tasks of this general type to 298 English and Dutch students. Patterns similar to the one described appeared in many but not all of these tasks.

ENDS

Notes for editors: ‘Explaining Focal Points: Cognitive Hierarchy Theory versus Team Reasoning’ by Nicholas Bardsley, Judith Mehta, Chris Starmer and Robert Sugden is published in the March 2010 issue of the Economic Journal.

Nicholas Bardsley is at the University of Southampton. Chris Starmer is at the University of Nottingham. Judith Mehta and Robert Sugden are at the University of East Anglia.

For further information: contact Romesh Vaitilingam on 07768-661095 (email: romesh@vaitilingam.com); or Robert Sugden on 01603-593423 (email: r.sugden@uea.ac.uk).