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Measuring Agents’ Reaction to Private and Public Information in Games with Strategic Complementarities

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Author Info

  • Camille Cornand

    ()
    (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

  • Franck Heinemann

    ()
    (Technische Universität Berlin, Chair of Macroeconomics, H 52 Straße des 17. Juni 135, 10 623 Berlin, Germany)

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    Abstract

    In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because public signals are more informative about the likely behavior of others. We present an experiment in which agents’ optimal actions are a weighted average of the fundamental state and their expectations of other agents’ actions. We measure the responses to public and private signals. We find that, on average, subjects put a larger weight on the public signal. In line with theoretical predictions, as the relative weight of the coordination component in a player’s utility increases, players put more weight on the public signal when making their choices. However, the weight is smaller than in equilibrium, which indicates that subjects underestimate the information contained in public signals about other players’ beliefs.

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    Bibliographic Info

    Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 1341.

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    Date of creation: 2013
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    Handle: RePEc:gat:wpaper:1341

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    Related research

    Keywords: coordination games; strategic uncertainty; private information; public information;

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    References

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    1. Plott, Charles R. & Sunder, Shyam., . "Rational Expectations and the Aggregation of Diverse Information in Laboratory Security Markets," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 463, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Hyun Song Shin & Stephen Morris, 2001. "Coordination Risk and the Price of Debt," FMG Discussion Papers, Financial Markets Group dp373, Financial Markets Group.
    3. Romain Baeriswyl & Camille Cornand, 2011. "Reducing overreaction to central banks’ disclosures : theory and experiment," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1141, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.
    4. Camille Cornand, 2006. "Speculative Attack and Informational Structure: an Experimental Study," Post-Print halshs-00360088, HAL.
    5. Lars E. O. Svensson, 2006. "Social Value of Public Information: Comment: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con," American Economic Review, American Economic Association, vol. 96(1), pages 448-452, March.
    6. Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
    7. Grossman, Zachary & Owens, David, 2011. "An Unlucky Feeling: Persistent Overestimation of Absolute Performance with Noisy Feedback," University of California at Santa Barbara, Economics Working Paper Series qt0dh5s03j, Department of Economics, UC Santa Barbara.
    8. Dmitry Shapiro & Xianwen Shi & Artie Zillante, 2009. "Robustness of Level-k Reasoning in Generalized Beauty Contest Games," Working Papers tecipa-380, University of Toronto, Department of Economics.
    9. David P. Myatt & Chris Wallace, 2008. "On the Sources and Value of Information: Public Announcements and Macroeconomic Performance," Economics Series Working Papers 411, University of Oxford, Department of Economics.
    10. Hanson, Robin, 1996. "Correction to McKelvey and Page, "Public and Private Information: An Experimental Study of Information Pooling"," Econometrica, Econometric Society, Econometric Society, vol. 64(5), pages 1223-24, September.
    11. McKelvey, Richard D. & Ordeshook, Peter C., 1985. "Elections with limited information: A fulfilled expectations model using contemporaneous poll and endorsement data as information sources," Journal of Economic Theory, Elsevier, vol. 36(1), pages 55-85, June.
    12. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
    13. Regina M. Anctil & John Dickhaut & Chandra Kanodia & Brian Shapiro, 2004. "Information Transparency and Coordination Failure: Theory and Experiment," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 159-195, 05.
    14. Camille Cornand, 2006. "Speculative Attacks and Informational Structure: an Experimental Study," Review of International Economics, Wiley Blackwell, vol. 14(5), pages 797-817, November.
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    Cited by:
    1. Radu, Vranceanu & Besancenot, Damien & Dubart, Delphine, 2013. "Can Rumors and Other Uninformative Messages Cause Illiquidity ?," ESSEC Working Papers WP1309, ESSEC Research Center, ESSEC Business School, revised Jun 2014.

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