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The role of aggregate information in a binary threshold game

Bo Chen () and Rajat Deb ()
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Bo Chen: Southern Methodist University
Rajat Deb: Southern Methodist University

Social Choice and Welfare, 2018, vol. 51, issue 3, 381-414

Abstract: Abstract We analyze the problem of coordination failure in the presence of imperfect information in the context of a binary-action sequential game with a tipping point. An information structure summarizes what each agent can observe before making her decision. Focusing on information structures where only “aggregate information” from past history can be observed, we characterize information structures that can lead to various (efficient and inefficient) Nash equilibria. When individual decision making can be rationalized using a process of iterative dominance (Moulin, Econometrica 47:1337–1351, 1979), we derive a necessary and sufficient condition on information structures under which a unique and efficient dominance solvable equilibrium outcome is obtained. Our results suggest that if sufficient (and not necessarily perfect) information is available, coordination failure can be overcome without centralized intervention.

Date: 2018
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