Explaining Focal Points: Cognitive Hierarchy Theory versus Team Reasoning

This paper reports experimental tests of two alternative explanations of how players use
focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory
explains coordination as the result of common beliefs about players’ pre-reflective
inclinations towards the relevant strategies; the theory of team reasoning explains it as the
result of the players’ using a non-standard form of reasoning. We report two experiments.
One finds strong support for team reasoning; the other supports cognitive hierarchy theory.
In the light of additional questionnaire evidence, we conclude that players’ reasoning is
sensitive to the decision context.