Accessible text version. Each heading below is one slide, in order.
LER 565, Week 4: Coordination Games in HR. Instructor: Ryan Lamare.
Recall Week 3: in a prisoner's dilemma each side's rational move leaves everyone worse off — one bad trap. This week we shift to games with several equilibria, where the trick is agreeing on one. Best-response analysis finds every equilibrium, not just dominant strategies. We cover three coordination games in HR — stag hunt, battle of the sexes, and chicken — and the focal points that resolve them.
With no dominant strategy, each player picks the best response to whatever the other might do. A Nash equilibrium is a cell where both are best-responding at once, so neither wants to move. This abstract three-by-three coordination game uses payoffs of 2,2 when the players match and 0,0 when they miss. Matching is always the best response, so there are three equilibria — the cells A-A, B-B, and C-C — each ringed in turn. A game can have one equilibrium, several, or none; coordination games have more than one. Rows are Player A (teal); columns are Player B (terracotta).
When several equilibria exist, players want to coordinate on the same one. A focal point is the equilibrium expectations converge on — chosen by context and common knowledge rather than payoffs. Schelling's example: strangers told to meet in New York with no time or place tend to pick noon at a landmark. In HR, benchmarking pay to 'above average' is a focal point that ratchets salaries upward.
The stag hunt payoff matrix. Hunter 1 chooses a row (Player A), Hunter 2 a column (Player B). Payoffs (Hunter 1, Hunter 2): both Hunt Stag gives 3, 3; Stag against Hare gives 0, 1; Hare against Stag gives 1, 0; both Hunt Hare gives 1, 1. Two Nash equilibria are ringed: Stag-Stag and Hare-Hare. Stag-Stag is best but needs trust; the barrier is assurance.
Workers and firms face a stag hunt. Workers can invest firm-specific skills, loyalty and effort; firms can invest training, security and voice. Both do best when both invest, but each fears being the only one to commit, which can lock in a low-trust equilibrium. HR's job is assurance: credible leadership signals and complementary 'HR bundles' that make mutual investment the expected outcome.
A battle-of-the-sexes matrix. Partner A picks a row, Partner B a column, each choosing Plan A or Plan B. Payoffs (A, B): Plan A together gives 2, 1; mismatches give 0, 0; Plan B together gives 1, 2. The two equilibria are both Plan A and both Plan B — both beat no deal, but A prefers one and B prefers the other. Related media: 'The Gift of the Magi' on Sesame Street, where Bert and Ernie miscoordinate gifts.
Union and management both prefer a contract to a strike, but pull toward different terms — each its own wage and benefit mix; similar tensions arise in post-merger HR integration. Resolution comes through bargaining power, commitment, and fair focal points. Repeated play helps: parties can alternate who wins or trade across issues so each gets its priority.
A game of chicken. Side A picks a row, Side B a column, each choosing Swerve or Hold Firm. Payoffs (A, B): both Swerve gives 0, 0; if A swerves and B holds, minus 10 and plus 10; if A holds and B swerves, plus 10 and minus 10; if both Hold Firm they crash at minus 100, minus 100. The two equilibria, where exactly one side yields, are ringed; the both-hold crash is the single solid-red trap cell. Related media: Footloose, where a stuck boot becomes a commitment device in a tractor standoff.
Chicken is a contest of nerve: hold firm and hope the other side blinks. Two HR examples. First, a relocation threat, where a firm warns it will move jobs or operations elsewhere unless its demands are met. Second, deadline brinkmanship, bargaining right up to the buzzer to see who concedes first. The danger is the edge: if neither side swerves, both crash. The way out is a credible, irreversible commitment, covered in the coming weeks.
Hiring is itself a coordination problem: the 'good' candidate is whoever the panel converges on. 'Cultural fit' (Rivera) acts as a focal point. Its cost is narrower diversity and groupthink; at the extreme it shades into discrimination, the 'good old boy' network. The fix is to shift the focal point to structured, skills-based criteria. Related media: Moneyball (2011), where Billy Beane moves the focal point from scouts' instinct to objective data.
A bad focal point can be devastating. Before the Challenger disaster, O-ring risk was gradually normalized (Pasternack), and conformity and silence kept the bad equilibrium in place. Break it deliberately: invite dissent, protect the people who raise it, and run premortems. Related media: the Freakonomics episode 'Failure Is Your Friend.'
Many HR problems have several equilibria; the task is to coordinate on one. The three games rise in difficulty: the stag hunt has aligned interests, the battle of the sexes has different preferences, and chicken has opposed interests where miscoordination is disastrous. Where you land turns on focal points. The tools are communication and assurance, fair focal points, and credible commitment. The final two weeks turn to information, strategic moves, and commitment devices.