Does Information Transparency Decrease Coordination Failure?

Regina Anctil (), John Dickhaut, Cathleen Johnson () and Chandra Kanodia ()
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Regina Anctil: Opus College of Business, University of St. Thomas
Cathleen Johnson: Department of Economics, The University of Arizona
Chandra Kanodia: Carlson School of Management, University of Minnesota

Working Papers from Chapman University, Economic Science Institute

Abstract: This study experimentally tests the effect of information transparency on the probability of coordination failure in global games with finite signals. Prior theory has shown that in global games with unique equilibrium, the effect of information transparency is ambiguous. We find that in global games where the signal space is finite, increased transparency has two effects. First, increasing the level of transparency usually destroys uniqueness and precipitates multiple equilibria, so that the effect of transparency on coordination depends crucially upon which equilibrium is actually attained. Second, the level of transparency determines which of these equilibria is risk dominant. We find that increased transparency facilitates coordination only if it switches the risk-dominant equilibrium from the secure equilibrium to the efficient equilibrium. When the converse is true, improved transparency can be dysfunctional because it increases the probability of coordination failure.

Pages: 44 pages
Date: 2008
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Journal Article: Does information transparency decrease coordination failure? (2010)
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