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Observing each other’s observations in a Bayesian coordination game

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  • Grafenhofer, Dominik
  • Kuhle, Wolfgang

Abstract

We study a Bayesian coordination game where agents receive private information on the game’s payoff structure. In addition, agents receive private signals that inform them of each other’s private information. We show, that once agents possess these different types of information, there exists a coordination game in the evaluation of this information. Even though the precisions of both signal types are exogenous, the precision with which agents forecast each other’s actions in equilibrium turns out to be endogenous. As a consequence, there exist multiple equilibria which differ with regard to the way that agents weight their private information to forecast each other’s actions.

Suggested Citation

  • Grafenhofer, Dominik & Kuhle, Wolfgang, 2016. "Observing each other’s observations in a Bayesian coordination game," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 10-17.
    • Handle: RePEc:eee:mateco:v:67:y:2016:i:c:p:10-17
    DOI: 10.1016/j.jmateco.2016.08.004
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    Cited by:

    1. Dominik Grafenhofer & Wolfgang Kuhle, 2019. "Observing Actions in Bayesian Games," Papers 1904.10744, arXiv.org.
    2. Dominik Grafenhofer & Wolfgang Kuhle, 2022. "Observing actions in global games," SN Business & Economics, Springer, vol. 2(12), pages 1-15, December.

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