In game theory, a Schelling point describes an intuitive focal solution people gravitate towards without direct communication. Named after its progenitor, economist Thomas Schelling, its reach extends to realms like negotiations, economics, and international affairs, driven by common societal frameworks and references.
A Schelling point refers to a solution or focal point that people tend to use in the absence of communication because it seems special or relevant to them.
The concept is named after economist Thomas Schelling who introduced it in the context of game theory.
Context of Introduction
Schelling originally described this concept while discussing problems in which individuals must select an outcome without communicating with others.
If two people are to meet in New York City but can’t specify a location or time, they might choose noon at Grand Central Terminal because it’s a prominent landmark and time.
Game Theory Relevance
In cooperative games where players can’t communicate, they often converge on Schelling points because they expect others to think they are special too.
Categories of Focal Points
- Prominence: Some choices stand out more than others.
- Cultural or Background Knowledge: Shared culture or common knowledge can shape which focal points emerge.
- Precedence: Past actions or decisions can establish a Schelling point for future interactions.
Applications Beyond Game Theory
- Negotiations: Parties might converge to a Schelling point when making decisions.
- Economics: Pricing, especially in markets with limited communication or transparency.
- Social Norms: How unwritten rules or conventions can emerge in societies.
- International Relations: Nations may converge to unwritten standards or behaviors.
Limits and Critiques
- Not all situations have clear Schelling points.
- Relying solely on Schelling points can oversimplify complex strategic interactions.
Connection to Common Knowledge
- Common knowledge refers to information that everyone knows and everyone knows that everyone knows.
- Schelling points often emerge from this shared common knowledge.
Dynamics in Digital Age
- Technology has changed how people communicate and coordinate.
- New focal points can emerge based on popular online platforms or globalized cultural phenomena.