How to solve multiple equilibria problem, Business Law and Ethics

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How to solve multiple equilibria problem

The approach of equilibrium selection to solve multiple equilibria problem aims to retain the definition of equilibrium and accepts that fact that there is a multiplicity of equilibria and assigns the responsibility to the agents for choosing out of those multiple equilibria. The most influential selection criterion of 'focal point' was introduced by Schething (1960). If there are multiple equilibria, one selected will have some 'natural' 'obvious' and 'conspicuous' characteristic, which lead agents to form on it. To the extent agents' focus on a particular equilibrium, absence of coordination and communication does not create problem.

 


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