Biased but efficient: An investigation of coordination facilitated by asymmetric dominance

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. © 2008 INFORMS.

Duke Scholars

Author Wilfred Amaldoss Fuqua School of Business

Author James R. Bettman Fuqua School of Business

Author John W. Payne Fuqua School of Business