Thomas C. Schelling

Thomas C. Schelling (1921–2016) was an American economist and professor known for his ground-breaking work on game theory and its application to conflict, cooperation, and international security. He was awarded the Nobel Memorial Prize in Economic Sciences in 2005 for “having enhanced our understanding of conflict and cooperation through game-theory analysis.” Schelling’s influential books, particularly “The Strategy of Conflict” (1960) and “Micromotives and Macrobehavior” (1978), introduced key concepts such as focal points, credible commitments, and the “tipping point” phenomenon, profoundly shaping fields like international relations, nuclear strategy, and even social dynamics.

Theory of Conflict

Thomas Schelling in “Theory of Conflict” wrote:

TACIT COORDINATION (COMMON INTERESTS)
When a man loses his wife in a department store without any prior understanding on where to meet if they get separated, the chances are good that they will find each other. It is likely that each will think of some obvious place to meet, so obvious that each will be sure that the other is sure that it is “obvious” to both of them. One does not simply predict where the other will go, since the other will go where he predicts the first to go, which is wherever the first predicts the second to predict the first to go, and so ad infinitum. Not “What would I do if I were she?” but “What would I do if I were she wondering what she would do if she were wondering what I would do if I were she. ..?” What is necessary is to coordinate predictions, to read the same message in the common situation, to identify the one course of action that their expectations of each other can converge on. They must “mutually recognize” some unique signal that coordinates their expectations of each other. We cannot be sure they will meet, nor would all couples read the same signal; but the chances are certainly a great deal better than if they pursued a random course of search.The reader may try the problem himself with the adjoining map (Fig. 7). Two people parachute unexpectedly into the area shown, each with a map and knowing the other has one, but neither knowing where the other has dropped nor able to communicate directly. They must get together quickly to be rescued. Can they study their maps and “coordinate” their behavior? Does the map suggest some particular meeting place so unambiguously that each will be confident that the other reads the same suggestion with confidence?”

The Traditional View: Playing the Game with Nash

In traditional economic and political science, understanding conflict and cooperation often leans on game theory, particularly the concept of a Nash Equilibrium. Imagine a scenario where everyone makes the best decision for themselves, given what everyone else is doing. If no one can improve their situation by changing their strategy alone, that’s a Nash Equilibrium. These models are powerful, analysing factors in a conflict, translating them into potential payoffs, and predicting outcomes, frequently focusing on the dance of bargaining.

Schelling’s Alternative: The Power of the “shared salience”

However, Thomas Schelling offered a different lens, especially for situations where direct communication is impossible. This is where his theory of focal points (or Schelling points) comes into play. Schelling suggested that coordination can emerge when people converge on a shared, mutually recognizable concept — the focal point. Think of it as the “obvious” choice in a complex situation. This is incredibly useful when there are multiple equally good outcomes, and everyone needs to independently pick the same one. We naturally gravitate towards the most salient, or prominent, option.

Bridging Economics and Psychology

Schelling’s idea isn’t entirely divorced from traditional economics; it cleverly integrates elements of both economics and psychology. From an economic standpoint, a focal point can be a candidate for establishing a Nash Equilibrium. If a focal point is strong enough, it guides everyone to a coordinated outcome where no one feels the need to deviate — the hallmark of a Nash Equilibrium.

Beyond Payoffs: The Psychology of Shared Salience

But here’s where Schelling diverges significantly from mainstream economic game theory. He argued that the payoff matrix — the raw numbers of gains and losses — isn’t always enough to figure out the best course of action in messy human conflicts with mixed interests.

Instead, Schelling emphasized that the emergence of focal points is shaped by factors ‘beyond the game’ itself. These are elements within the shared situation that everyone recognizes as significant, not because of calculated payoffs, but because of their inherent salience.

Coordination Through Shared Expectations

So, while a focal point might ultimately lead to a stable outcome that looks like a Nash Equilibrium, the journey there, according to Schelling, is a psychological one. It’s about coordinating our expectations by recognizing a shared landmark in our common understanding. This mutually recognized signal helps us predict where others will predict we will go, allowing our actions to converge. It’s less about pure calculation based on individual payoffs and more about a shared, intuitive grasp of the situation — finding that “jointly attracting” place together, even when we can’t talk about it.

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Focal points and the power of implicit shared salience