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Efficient Dynamic Coordination with Individual Learning

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Author Info
Amil Dasgupta
Jakub Steiner
Colin Stewart

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Abstract

We study how the presence of multiple participation opportunities coupled with private 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 q is positive and both players invest, possibly asynchronously. In each round they receive informative private signals about q, and asymptotically learn the true value of q. Players choose in each period whether to invest or to wait for more precise information about q. We show that with sufficiently many rounds, both players invest with arbitrarily high probability whenever investment is socially efficient. 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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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-301.

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Length: 25 pages
Date of creation: 07 Nov 2007
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Handle: RePEc:tor:tecipa:tecipa-301

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Related research
Keywords: Coordination; global games; efficiency; dynamic games; higher-order beliefs;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384.
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    Other versions:
  3. Itay Goldstein & Ady Pauzner, 2005. "Demand-Deposit Contracts and the Probability of Bank Runs," Journal of Finance, American Finance Association, vol. 60(3), pages 1293-1327, 06. [Downloadable!] (restricted)
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    Other versions:
  5. Stephen Morris & Hyun Song Shin, 2007. "Common Belief Foundations of Global Games," Levine's Bibliography 122247000000001638, UCLA Department of Economics. [Downloadable!]
  6. Martin W. Cripps & Jeffrey C. Ely & George J. Mailath & Larry Samuelson, 2006. "Common Learning," Levine's Bibliography 321307000000000355, UCLA Department of Economics. [Downloadable!]
    Other versions:
  7. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
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  8. Morris, Stephen & Rob, Rafael & Shin, Hyun Song, 1995. "Dominance and Belief Potential," Econometrica, Econometric Society, vol. 63(1), pages 145-57, January. [Downloadable!] (restricted)
  9. Christophe Chamley, 2003. "Dynamic Speculative Attacks," American Economic Review, American Economic Association, vol. 93(3), pages 603-621, June. [Downloadable!]
  10. Stephen Morris & Hyun S Shin, 2001. "Global Games: Theory and Applications," Levine's Working Paper Archive 122247000000001080, David K. Levine. [Downloadable!]
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  11. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, 05. [Downloadable!] (restricted)
  12. Paul Heidhues & Nicolas Melissas, 2006. "Equilibria in a dynamic global game: the role of cohort effects," Economic Theory, Springer, vol. 28(3), pages 531-557, 08. [Downloadable!] (restricted)
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  13. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. John Duffy & Jack Ochs, 2009. "Equilibrium Selection in Static and Dynamic Entry Games," Working Papers 376, University of Pittsburgh, Department of Economics, revised Feb 2009. [Downloadable!]
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