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Abstract
How much are you willing to pay to play a given coordination game? In his seminal work, Schelling (1960) noted that traditional game theory does not assign a value to coordination games, and suggested that this is because people’s success in coordinating cannot be understood from economic primitives alone (e.g., pp. 97-98). We therefore incorporate insights from psychology into the standard game-theoretic model to model how people take the perspective of others, and use this to assign a unique value to symmetric two-player, two-action coordination games. Behavior is shaped both by payoffs and by strategic uncertainty. When higher payoffs increase strategic uncertainty, the value of the game decreases. Extensions are discussed.
