Schelling points

Sometimes it really hurts to be out of fashion. A few examples: buying a phone with an obscure operating system limits access to the best apps. Or if a company locks into a multi-year contract with a dying software platform, it shouldn't expect a good return on that investment. Spending months perfecting a MySpace account... etc.

Any time the value of a group resource increases as the number of users increases there is an advatage in picking the eventual winner. Is there a way to know which option everyone else will pick?   One mechanism that drives collective decisions of this type is the Schelling point (or focal point). From the Wikipedia article:

Consider a simple example: two people unable to communicate with each other are each shown a panel of four squares and asked to select one; if and only if they both select the same one, they will each receive a prize. Three of the squares are blue and one is red. Assuming they each know nothing about the other player, but that they each do want to win the prize, then they will, reasonably, both choose the red square. Of course, the red square is not in a sense a better square; they could win by both choosing any square. And it is the "right" square to select only if a player can be sure that the other player has selected it; but by hypothesis neither can. It is the most salient, the most notable square, though, and lacking any other one most people will choose it, and this will in fact (often) work.

 It's a pretty simple idea, but it helps makes sense of otherwise irrational behavior.

Another example helps explain behavior that might otherwise appear irrational. Imagine the same situation as before where two people who can't communicate will win a prize if they pick the same square. Rather than have 3 blue blocks and a red block, instead the prize is awarded for picking the popular choice in black ink on identical white squares.  3 of the squares say $100 and one of them says $99 (See Figure 2). In this case, the best bet is to take the worst (but unique) prize. By exchanging value for uniqueness, the overall expected payout increases because others are likely to pick that too.

If you can think of other pure Schelling points, leave them in the comments. Here's a video if you're bored.