Journal Article

Endogenous Information Acquisition in Coordination Games

David P. Myatt and Chris Wallace

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 79, issue 1, pages 340-374
Published in print January 2012 | ISSN: 0034-6527
Published online October 2011 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1093/restud/rdr018
Endogenous Information Acquisition in Coordination Games

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  • Game Theory and Bargaining Theory
  • Information, Knowledge, and Uncertainy

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In the context of a “beauty-contest” coordination game (in which pay-offs depend on the quadratic distance of actions from an unobserved state variable and from the average action), players choose how much costly attention to pay to various informative signals. Each signal has an underlying accuracy (how precisely it identifies the state) and a clarity (how easy it is to understand). The unique linear equilibrium has interesting properties: the signals which receive attention are the clearest available, even if they have poor underlying accuracy; the number of signals observed falls as the complementarity of players' actions rises; and, if actions are more complementary, the information endogenously acquired in equilibrium is more public in nature. The consequences of “rational-inattention” constraints on information transmission and processing are also studied.

Keywords: Beauty-contests; Coordination games; Information acquisition; Rational inattention; C72; D83

Journal Article.  17595 words.  Illustrated.

Subjects: Game Theory and Bargaining Theory ; Information, Knowledge, and Uncertainy

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