Non-Laplacian Beliefs in a Global Game with Noisy Signaling

Chris Edmond

No 1171, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: In standard global games, individual behavior is optimal if it constitutes a best response to agnostic - Laplacian - beliefs about the aggregate behavior of other agents. This paper considers a standard binary action global game augmented with noisy signaling by an informed policy-maker and shows that in this game, equilibrium beliefs depart in quite stark ways from the Laplacian benchmark. In the limit as signals become arbitrarily precise, so that all fundamental uncertainty is removed (leaving only strategic uncertainty), the equilibrium beliefs of the marginal individual concerning the aggregate action collapse to a discrete binomial distribution, giving probability mass only to the polar extreme outcomes. By contrast in the underlying standard global game the marginal individual believes the aggregate action has a continuous uniform distribution, giving equal likelihood to all possible outcomes.

Keywords: coordination; signalling; bias; strategic uncertainty; noise (search for similar items in EconPapers)
JEL-codes: C7 D7 D8 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2013
New Economics Papers: this item is included in nep-cta, nep-ger, nep-gth, nep-hpe and nep-mic
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http://fbe.unimelb.edu.au/__data/assets/pdf_file/0009/796968/1171.pdf

Related works:
Journal Article: Non-Laplacian beliefs in a global game with noisy signaling (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:mlb:wpaper:1171

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