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Coordination and Continuous Stochastic Choice

Author

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  • Stephen Morris
  • Ming Yang

Abstract

Players receive a return to investment that is increasing in the proportion of others who invest and the state and incur a small cost for acquiring information about the state. Their information is reflected in a stochastic choice rule, specifying the probability of a signal leading to investment. If discontinuous stochastic choice rules are infinitely costly, there is a unique equilibrium as costs become small, in which actions are a best response to a uniform (Laplacian) belief over the proportion of others investing. Infeasibility of discontinuous stochastic choice rules captures the idea that it is impossible to perfectly distinguish states that are arbitrarily close together and is both empirically documented and satisfied by many natural micro-founded cost functionals on information. Our results generalize global game selection results and establish that they do not depend on the specific additive noise information structure.

Suggested Citation

  • Stephen Morris & Ming Yang, 2022. "Coordination and Continuous Stochastic Choice," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(5), pages 2687-2722.
    • Handle: RePEc:oup:restud:v:89:y:2022:i:5:p:2687-2722.
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    File URL: http://hdl.handle.net/10.1093/restud/rdab082
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    Cited by:

    1. Tommaso Denti & Doron Ravid, 2023. "Robust Predictions in Games with Rational Inattention," Papers 2306.09964, arXiv.org.
    2. Schilling, Linda, 2024. "Smooth Regulatory Intervention," MPRA Paper 120041, University Library of Munich, Germany.
    3. Inostroza, Nicolas A. & Pavan, Alessandro, 0. "Adversarial coordination and public information design," Theoretical Economics, Econometric Society.
    4. Walker-Jones, David, 2023. "Rational inattention with multiple attributes," Journal of Economic Theory, Elsevier, vol. 212(C).
    5. Schilling, Linda, 2023. "Smooth versus Harsh Regulatory Interventions and Policy Equivalence," CEPR Discussion Papers 17996, C.E.P.R. Discussion Papers.
    6. Flynn, Joel P. & Sastry, Karthik A., 2023. "Strategic mistakes," Journal of Economic Theory, Elsevier, vol. 212(C).

    More about this item

    Keywords

    Coordination; Endogenous information acquisition; Continuous stochastic choice;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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