Schelling Point: Cooperating Without Communicating

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People who can’t communicate can cooperate by anticipating the other person’s actions.

Nivi: Let’s talk about Schelling points.

Naval: The Schelling point is a game theory concept made famous by Thomas Schelling in his book, The Strategy of Conflict, which I recommend.

It’s about multiplayer games where people respond based on what they think the other person’s response will be. He came up with a mathematical formalization to answer: How do you get people who cannot communicate with each other to coordinate?

Use social norms to cooperate when you can’t communicate

Suppose I want to meet with you, but I don’t tell you where or when to meet. You also want to meet with me, but we can’t communicate. That sounds like an impossible problem to solve—we can’t do it. But not quite. 

You can use social norms to converge on a Schelling point. I know you’re rational and educated. And you know I’m rational and educated. We’re both going to start thinking.

When will we meet? If we have to pick an arbitrary date, we’ll probably pick New Year’s Eve. What time will we meet? Midnight or 12:01 a.m. Where will we meet? If we’re Americans, the big meeting spot is probably New York City, the most important city. Where in New York City will we meet? Probably under the clock at Grand Central Station. Maybe you end up at the Empire State Building, but not likely.

You can find Schelling points in business, art and politics

There are many games—whether it’s business or art or politics—where you can find a Schelling point. So you can cooperate with the other person, even when you can’t communicate. 

Here’s a simple example: Suppose two companies are competing heavily and hold an oligopoly. Let’s say the price fluctuates between $8 and $12 for whatever the service is. Don’t be surprised if they converge on $10 without ever talking to each other.