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Information-constrained coordination of economic behavior

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  • Aridor, Guy
  • Azeredo da Silveira, Rava
  • Woodford, Michael

Abstract

We analyze a coordination game with information-constrained players. The players' actions are based on a noisy compressed representation of the game's payoffs in a particular case, where the compressed representation is a latent state learned by a variational autoencoder (VAE). Our generalized VAE is optimized to trade off the average payoff obtained over a distribution of possible games against a measure of the congruence between the agent's internal model and the statistics of its environment. We apply our model to the coordination game in the experiment of Frydman and Nunnari (2023), and show that it offers an explanation for two salient features of the experimental evidence: both the relatively continuous variation in the players' action probabilities with changes in the game payoffs, and the dependence of the degree of stochasticity of players' choices on the range of game payoffs encountered on different trials. Our approach also provides an account of the way in which play should gradually adjust to a change in the distribution of game payoffs that are encountered, offering an explanation for the history-dependent play documented by Arifovic et al. (2013).

Suggested Citation

  • Aridor, Guy & Azeredo da Silveira, Rava & Woodford, Michael, 2025. "Information-constrained coordination of economic behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 172(C).
    • Handle: RePEc:eee:dyncon:v:172:y:2025:i:c:s0165188924001775
    DOI: 10.1016/j.jedc.2024.104985
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    References listed on IDEAS

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    1. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2009. "Measuring Strategic Uncertainty in Coordination Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 181-221.
    2. Yang, Ming, 2015. "Coordination with flexible information acquisition," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 721-738.
    3. Michael Woodford, 2020. "Modeling Imprecision in Perception, Valuation, and Choice," Annual Review of Economics, Annual Reviews, vol. 12(1), pages 579-601, August.
    4. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    5. Arifovic, Jasmina & Hua Jiang, Janet & Xu, Yiping, 2013. "Experimental evidence of bank runs as pure coordination failures," Journal of Economic Dynamics and Control, Elsevier, vol. 37(12), pages 2446-2465.
    6. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2016. "Quantal Response Equilibrium:A Stochastic Theory of Games," Economics Books, Princeton University Press, edition 1, number 10743.
    7. Evan Friedman, 2020. "Endogenous quantal response equilibrium," Post-Print halshs-04479446, HAL.
    8. Friedman, Evan, 2020. "Endogenous quantal response equilibrium," Games and Economic Behavior, Elsevier, vol. 124(C), pages 620-643.
    9. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information," Econometrica, Econometric Society, vol. 72(5), pages 1583-1599, September.
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