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Attention, Coordination, and Bounded Recall

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  • Alessandro Pavan

Abstract

I consider a exible framework of strategic interactions under incomplete information in which, prior to committing their actions (consumption, production, or investment decisions), agents choose the attention to allocate to an arbitrarily large number of information sources about the primitive events that are responsible for the incompleteness of information (the exogenous fundamentals). The analysis sheds light on what type of payoff¤ interdependencies contribute to inefficiency in the allocation of attention. The results for the case of perfect recall (in which the agents remember the inuence of each source on their posterior beliefs) are compared to those for the case of bounded recall (in which posterior beliefs about the underlying fundamentals are consistent with Bayesian updating, but in which the agents are unable to keep track of the influence of individual sources on their posterior beliefs).

Suggested Citation

  • Alessandro Pavan, 2014. "Attention, Coordination, and Bounded Recall," Discussion Papers 1576, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  • Handle: RePEc:nwu:cmsems:1576
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    File URL: http://www.kellogg.northwestern.edu/research/math/papers/1576.pdf
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    References listed on IDEAS

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    1. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    2. Ryan Chahrour, 2014. "Public Communication and Information Acquisition," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(3), pages 73-101, July.
    3. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
    4. Van Zandt, Timothy & Vives, Xavier, 2007. "Monotone equilibria in Bayesian games of strategic complementarities," Journal of Economic Theory, Elsevier, vol. 134(1), pages 339-360, May.
    5. Filip Matejka & Alisdair McKay, 2012. "Simple Market Equilibria with Rationally Inattentive Consumers," American Economic Review, American Economic Association, vol. 102(3), pages 24-29, May.
    6. Luca Colombo & Gianluca Femminis & Alessandro Pavan, 2014. "Information Acquisition and Welfare," Review of Economic Studies, Oxford University Press, vol. 81(4), pages 1438-1483.
    7. David P. Myatt & Chris Wallace, 2012. "Endogenous Information Acquisition in Coordination Games," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 340-374.
    8. Yilmaz Kocer, 2010. "Endogenous Learning with Bounded Memory," Working Papers 1290, Princeton University, Department of Economics, Econometric Research Program..
    9. Sendhil Mullainathan, 2002. "A Memory-Based Model of Bounded Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 735-774.
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    Citations

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    Cited by:

    1. Bernard Herskovic & João Ramos, 2020. "Acquiring Information through Peers," American Economic Review, American Economic Association, vol. 110(7), pages 2128-2152, July.
    2. Mäkinen, Taneli & Ohl, Björn, 2015. "Information acquisition and learning from prices over the business cycle," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 585-633.
    3. Galperti, Simone & Trevino, Isabel, 2020. "Coordination motives and competition for attention in information markets," Journal of Economic Theory, Elsevier, vol. 188(C).
    4. George‐Marios Angeletos & Fabrice Collard & Harris Dellas, 2018. "Quantifying Confidence," Econometrica, Econometric Society, vol. 86(5), pages 1689-1726, September.
    5. Gossner, Olivier & Steiner, Jakub, 2018. "On the cost of misperception: General results and behavioral applications," Journal of Economic Theory, Elsevier, vol. 177(C), pages 816-847.
    6. Bianchi, Milo & Jehiel, Philippe, 2015. "Financial reporting and market efficiency with extrapolative investors," Journal of Economic Theory, Elsevier, vol. 157(C), pages 842-878.
    7. Pavan, Alessandro & Vives, Xavier, 2015. "Information, Coordination, and Market Frictions: An Introduction," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 407-426.
    8. Yang, Ming, 2015. "Coordination with flexible information acquisition," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 721-738.
    9. Eccles, Peter & Wegner, Nora, 2017. "Scalable games: modelling games of incomplete information," Bank of England working papers 641, Bank of England.
    10. Myatt, David P. & Wallace, Chris, 2015. "Cournot competition and the social value of information," Journal of Economic Theory, Elsevier, vol. 158(PB), pages 466-506.

    More about this item

    Keywords

    attention; endogenous information; strategic complementarity/substitutability; externalities; efficiency; welfare; bounded recall JEL Classification: C72; D62; D83; E50;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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