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Efficient Dynamic Coordination with Individual Learning

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  • Amil Dasgupta

    ()

  • Jakub Steiner
  • Colin Stewart

Abstract

We study how the presence of multiple participation opportunities coupled with individual learning about payoffs affects the ability of agents to coordinate efficiently in global coordination games. Two players face the option to invest irreversibly in a project in one of many rounds. The project succeeds if some underlying state variable è is positive and both players invest, possibly asynchronously. In each round they receive informative private signals about è, and asymptotically learn the true value of è. Players choose in each period whether to invest or to wait for more precise information about è. We show that with sufficiently many rounds, both players invest with arbitrarily high probability whenever investment is socially efficient, and delays in investment disappear when signals are precise. This result stands in sharp contrast to the usual static global game outcome in which players coordinate on the risk-dominant action. We provide a foundation for these results in terms of higher order beliefs.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp600.

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Date of creation: Nov 2007
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Handle: RePEc:fmg:fmgdps:dp600

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  4. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
  5. Martin W. Cripps & Jeffrey C. Ely & George J. Mailath & Larry Samuelson, 2007. "Common Learning," PIER Working Paper Archive 07-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Martin W. Cripps & Jeffrey C. Ely & George J. Mailath & Larry Samuelson, 2008. "Common Learning," Econometrica, Econometric Society, vol. 76(4), pages 909-933, 07.
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  11. Christophe Chamley, 2003. "Dynamic Speculative Attacks," American Economic Review, American Economic Association, vol. 93(3), pages 603-621, June.
  12. Goldstein, Itay & Pauzner, Ady, 2004. "Contagion of self-fulfilling financial crises due to diversification of investment portfolios," Journal of Economic Theory, Elsevier, vol. 119(1), pages 151-183, November.
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  15. Amil Dasgupta, 2004. "Financial Contagion Through Capital Connections: A Model of the Origin and Spread of Bank Panics," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1049-1084, December.
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Cited by:
  1. John Duffy, 2009. "Equilibrium Selection in Static and Dynamic Entry Games," Working Papers 376, University of Pittsburgh, Department of Economics, revised Dec 2011.
  2. Sylvain Chassang & Gerard Padro i Miquel, 2008. "Conflict and Deterrence under Strategic Risk," NBER Working Papers 13964, National Bureau of Economic Research, Inc.

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