Public information and the concern for coordination

Kene Boun My (bounmy@unistra.fr), Camille Cornand and Rodolphe Dos Santos Ferreira

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Abstract: In the standard beauty contest game of Morris and Shin (2002), agents have to choose actions in accordance with an expected fundamental value and with the conventional value expected to be set by the market. In doing so, agents respond to fundamental and coordination motives, respectively, the prevalence of either motive being set exogenously. Our contribution is to consider whether agents favor the fundamental or the coordination motive as the result of a strategic choice. First, we extend the generic beauty contest game by endogenizing the weight put on the coordination motive and show that the mere presence of public information theoretically leads agents to fully favor the coordination motive. The prevalence of the coordination motive over the fundamental one yields a disconnection of average actions from the fundamental. Second, we test this game through a laboratory experiment. Subjects tend to conform to theoretical predictions, except when private information is very precise in comparison to public information, qualifying the focal role of public information.

Keywords: Dispersed information; Public information; Beauty contest; Coordination; Experiment (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-exp and nep-gth
Note: View the original document on HAL open archive server: https://hal.science/hal-03468870v6
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Published in Journal of Behavioral and Experimental Economics, 2021, 93, 41 p. ⟨10.1016/j.socec.2021.101710⟩

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Journal Article: Public information and the concern for coordination (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03468870

DOI: 10.1016/j.socec.2021.101710

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