Focal Points Revisited: Team Reasoning, the Principle of Insufficient Reason and Cognitive Hierarchy Theory

Abstract

Coordination on focal points in one shot games can often be explained by team reasoning, a departure from individualistic choice theory. However, a less exotic explanation of coordination, based on best-responding to uniform randomisation, could explain much of the same data. We test the team reasoning explanation of coordination experimentally against this alternative, using games with variable losses under non-coordination. Subjects' responses are observed when the behaviour of their partner is determined in accordance with each theory, and under game conditions where behaviour is unconstrained. The results are more consistent with the team reasoning explanation. Increasing the difficulty of coordination tasks produces some behaviour suggestive of response to randomisation, but this effect is not pronounced.