Thomas Schelling is an American Economist, who was awarded the 2005 Nobel Memorial Prize in Economic Sciences, which he shared with Robert Aumann.
“He is a producer of game theory and I am a user of game theory, … I use game theory to help myself understand conflict situations and opportunities.”
-Thomas Schelling, Nobel Prize winner in Economics
Thomas Schelling wrote book “The Strategy of Conflict” in 1960, in which he introduced concept of focal point.
To explain the concept, Schelling used to give interesting example. Suppose you are asked to meet a stranger in New York tomorrow, where and when will you meet him? You not only don’t know this person, but you also cannot communicate with him. In most of the cases answer was 12 noon, near clock at Grand Station.
There is nothing special about Grand Station. From Game Theory point of view any place in city is Nash equilibrium i.e. be it bar, restaurant, café etc., Grand Station is also one of the them and it does not offer any higher payoff. But our mind focuses more prominently on certain places or things and hence we prefer it over others. These are generally the places about which we have knowledge and are familiar with. Schelling called it as focal point. It is called as Schelling point.
He gives one more example in his book. A map is given to two paratroopers and both have to land on same spot, both cannot communicate with each other. In theory any point in map has same probability, but most of the participants opted for a bridge on river (there is only one bridge shown in map) instead of roads, houses etc.
Had we asked Mumbaikar where he would meet stranger, my guess is it will be at noon, below indicator at bridge joining Central and Western railways at Dadar Station.