Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2018:30: Flexible Information Acquisition in Large Coordination Games

Alexandros Rigos ()
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Alexandros Rigos: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: This paper studies how large populations of rationally inattentive individuals acquire and use information about economic fundamentals when, along with the motive to accurately estimate the fundamental, they are driven by coordination motives. Information acquisition is costly but flexible: players design their information channel by determining the distribution of the signal that they receive and arbitrarily correlating it with the fundamental. Costs are linear in the reduction of Shannon entropy. Firstly, the classes of equilibria in which players use continuous strategies and equilibria without information acquisition are characterized. This is achieved without assuming a normal prior for the fundamental. Secondly, equilibria where the population-wide average action is an affine function of the fundamental exist only when the fundamental is normally distributed. This indicates that equilibrium tractability heavily depends on the normality assumption prevalent in existing literature. Finally, multiple equilibria occur under some parameter regions with high coordination motiv

Keywords: Coordination games; Beauty-contest; Flexible information acquisition; Rational inattention; Non-normal prior

JEL-codes: C72; D83

46 pages, November 7, 2018

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