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Biased but Efficient: An Investigation of Coordination Facilitated by Asymmetric Dominance

The Fuqua School of Business, Duke University, Durham, North Carolina 27708
The Fuqua School of Business, Duke University, Durham, North Carolina 27708
The Fuqua School of Business, Duke University, Durham, North Carolina 27708
wilfred.amaldoss{at}duke.edu
jrb12{at}duke.edu
jpayne{at}duke.edu

In several marketing contexts, strategic complementarity between the actions of individual players demands that players coordinate their decisions to reach efficient outcomes. Yet coordination failure is a common occurrence. We show that the well-established psychological phenomenon of asymmetric dominance can facilitate coordination in two experiments. Thus, we demonstrate a counterintuitive result: A common bias in individual decision making can help players to coordinate their decisions to obtain efficient outcomes. Further, limited steps of thinking alone cannot account for the observed asymmetric dominance effect. The effect appears to be due to increased psychological attractiveness of the dominating strategy, with our estimates of the incremental attractiveness ranging from 3%–6%. A learning analysis further clarifies that asymmetric dominance and adaptive learning can guide players to an efficient outcome.

Key Words: strategic decision making; asymmetric dominance effect; bounded rationality; coordination
History: Received: August 7, 2006;