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Delay and information aggregation in stopping games with private information

  • Murto, Pauli
  • Välimäki, Juuso

We consider equilibrium timing decisions in a model with a large number of players and informational externalities. The players have private information about a common payoff parameter that determines the optimal time to invest. They learn from each other in real time by observing past investment decisions. We develop new methods of analysis for such large games, and we give a full characterization of symmetric equilibria. We show that the equilibrium statistical inferences are based on an exponential learning model. Although the beliefs converge to truth, learning takes place too late. Ex-ante welfare is strictly between that without observational learning and that with full information.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 6 ()
Pages: 2404-2435

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:6:p:2404-2435
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  2. Grenadier, Steven R, 1999. "Information Revelation through Option Exercise," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 95-129.
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  7. Wolfgang Pesendorfer & Jeroen M. Swinkels, 1995. "The Loser's Curse and Information Aggregation in Common Value Auctions," Discussion Papers 1147, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Levin, Dan & Peck, James, 2008. "Investment dynamics with common and private values," Journal of Economic Theory, Elsevier, vol. 143(1), pages 114-139, November.
  9. Pauli Murto & Juuso Välimäki, 2011. "Learning and Information Aggregation in an Exit Game," Review of Economic Studies, Oxford University Press, vol. 78(4), pages 1426-1461.
  10. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
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  12. Moscarini, Giuseppe & Squintani, Francesco, 2010. "Competitive experimentation with private information: The survivor's curse," Journal of Economic Theory, Elsevier, vol. 145(2), pages 639-660, March.
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