A Theory of Focal Points

The paper presents a theoretical framework that distinguishes between the strategic structure of a game (the existential game) and the way the players describe the game to themselves. Each player works with a private description of the game in which strategies are identified by labels; labels are generated by a stochastic labeling procedure. Each player chooses a decision rule which, for each possible private description, picks one of the available strategy labels. A criterion of collective rationality is applied to choices among decision rules. The implications of collective rationality are explored for a range of games with different labeling procedures. Copyright 1995 by Royal Economic Society.