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Flexible Information Acquisition in Large Coordination Games

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Abstract

This paper studies how large populations of rationally inattentive individuals acquire and use information about economic fundamentals when, along with the motive to accurately estimate the fundamental, they are driven by coordination motives. Information acquisition is costly but flexible: players design their information channel by determining the distribution of the signal that they receive and arbitrarily correlating it with the fundamental. Costs are linear in the reduction of Shannon entropy. Firstly, the classes of equilibria in which players use continuous strategies and equilibria without information acquisition are characterized. This is achieved without assuming a normal prior for the fundamental. Secondly, equilibria where the population-wide average action is an affine function of the fundamental exist only when the fundamental is normally distributed. This indicates that equilibrium tractability heavily depends on the normality assumption prevalent in existing literature. Finally, multiple equilibria occur under some parameter regions with high coordination motiv

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  • Rigos, Alexandros, 2018. "Flexible Information Acquisition in Large Coordination Games," Working Papers 2018:30, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2018_030
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    File URL: https://project.nek.lu.se/publications/workpap/papers/wp18_30.pdf
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    1. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    2. Daron Acemoglu & Martin Kaae Jensen, 2015. "Robust Comparative Statics in Large Dynamic Economies," Journal of Political Economy, University of Chicago Press, vol. 123(3), pages 587-640.
    3. Christian Hellwig & Sebastian Kohls & Laura Veldkamp, 2012. "Information Choice Technologies," American Economic Review, American Economic Association, vol. 102(3), pages 35-40, May.
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    More about this item

    Keywords

    Coordination games; Beauty-contest; Flexible information acquisition; Rational inattention; Non-normal prior;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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