Imagine a reality television game show where two contestants begin the game in two different places in New York City. The object of the game is for the two contestants to find each other, but they do not know anything about each other and they have no way of communicating. If they succeed, both contestants win a prize. If they fail, they get nothing. With no ability to explicitly bargain over the meeting, the parties have to make an educated guess about what the other person is most likely to do. Most people, confronted with this sort of tacit coordination game, will attempt the meeting at a major New York City landmark such as the Empire State Building. Absent any other clues as to the optimal equilibrium meeting point, both parties choose a place that is imaginatively unique and intuitive, expecting that the place will also be unique in the other’s imagination. The Empire State Building stands out not because it is a particularly optimal meeting place, but rather because it is iconic, nearly synonymous with New York City itself. This is called a “focal point,” or “Schelling point,” after Professor Thomas Schelling.
There are two important observations that arise from the New York City game: first, that people can coordinate without communication and, second, that value-creating outcomes can be achieved despite multiple equilibria and high transaction costs. As to the former, the fact that many more people than would be expected by chance would likely collect the prize illustrates that coordination without communication is possible.