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Flexible Information Acquisition in Large Coordination Games

Alexandros Rigos

No 2018:30, Working Papers from Lund University, Department of Economics

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.

Keywords: Coordination games; Beauty-contest; Flexible information acquisition; Rational inattention; Non-normal prior; Skew normal distribution (search for similar items in EconPapers)
JEL-codes: C72 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-gth and nep-mic
Date: 2018-11-07, Revised 2019-08-09
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