Flexible Information Acquisition in Large Coordination Games

Research output: Working paper

Abstract

This paper studies how large populations of rationally inattentive individuals acquire information about economic fundamentals when, along with the motive to accurately estimate the fundamental, they have coordination motives. Information acquisition is costly but flexible: players determine the distribution of the signal that they receive and arbitrarily correlate it with the fundamental, paying costs linear in Shannon mutual information. Without assuming a normal prior for the fundamental, the class of equilibria in continuous strategies is characterized. Populations with heterogeneous costs exhibit the same aggregate behavior as homogeneous populations with the same average cost. Equilibria where the population-wide average action is an affine function of the fundamental exist only when the fundamental is normally distributed. Finally, a novel method allows to study non-normal priors, leading to new insights. For example, the distribution of the equilibrium action exhibits an amplified skewness compared to the distribution of the fundamental.

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Coordination games, Beauty-contest, Flexible information acquisition, Rational inattention, Non-normal prior, Skew normal distribution, C72, D83
Original languageEnglish
Number of pages50
Publication statusPublished - 2018
Publication categoryResearch

Publication series

NameWorking Papers
PublisherLund University, Department of Economics
No.2018:30