Focal Points in Experimental Bargaining Games

This paper is a review of experiments that have investigated the role of focal point reasoning in bargaining games. The concept of a focal point derives from Schelling’s 1960 book The Strategy of Conflict. Schelling hypothesises that in bargaining games, rational players will often be able to reach an agreement, even without communication, by using their shared knowledge of ‘incidental details’ of the relevant game. Even if these details discriminate against one player, the mutual expectation of the resulting agreement would leave that player with no choice but to submit to it. A focal point is an equilibrium that is selected through such a process of ‘meeting of minds’ based on commonly known cues that discriminate between the available equilibria. We distinguish between payoff-based focal points (based on properties of equilibrium payoffs, such as equality and efficiency) and label-based focal points (based on ‘incidental’ properties of players or strategies). We see the essence of Schelling’s intuition to be the players’ recognition that conflicts of interest should be set aside in the search for a discriminating cue. In this respect, label-based focal points are better suited to identify pure focal-point reasoning. The experimental evidence suggests that label-based cues can have a significant effect on the outcomes of bargaining games, but conflicts of interest have a stronger tendency to inhibit this effect than Schelling hypothesised.