Coordination with Flexible Information Acquisition

Abstract

We study flexible information acquisition in a coordination game. "Flexible" acquisition means that players choose not only how much but also what kind of information to acquire. Information acquisition has a cost proportional to reduction of entropy. Hence, players will collect the information most relevant to their welfare but can be rationally inattentive to other aspects of the fundamental. When information is cheap, this flexibility enables players to acquire information that makes efficient coordination possible, which also leads to multiple equilibria. This result contrasts with the global game literature, where information structure is less flexible and cheap information leads to a unique equilibrium with inefficient coordination. We then go beyond the entropic information cost to set out the key aspects of flexibility and examine the way in which they drive our results.

An Offer You Can't Refuse? Incentives Change What We Believe

“…The mechanism it identifies is an important comparative static implication of the theory of rational inattention (Sims, 2003(Sims, , 2006Woodford, 2012Woodford, , 2014Martin, 2014;Caplin and Martin, 2014;Yang, 2014;Matějka and McKay, 2015; Caplin and Dean, 2015; see Caplin (forthcoming) for a review), and the experiment in section 5 is an explicit test thereof. The paper more generally relates to a theoretical literature on endogenous information acquisition by Bayesians (Caplin and Leahy, 2001;Bénabou andTirole, 2002, 2011;Suen, 2004;Koszegi, 2006;Eliaz and Spiegler, 2006;Gentzkow and Kamenica, 2011).…”

Biases in Accounting and Nonaccounting Information: Substitutes or Complements?

“…Second, the focus on the bias instead of the accuracy of information generates different, more general implications than previous works that posit information as unbiased noisy signals of some fundamental and focus on their optimal precision . The focus on bias, which is one of the qualitative properties of information, also connects with the growing literature on rational inattention and flexible information acquisition (e.g., Sims [, ], Yang []), whose main insight is that, to economize on the use of information, agents will focus on the information that is relevant to their welfare and be rationally inattentive to other aspects. This paper generates similar insights in an accounting setting.…”

Signaling with costly acquisition of signals

“…In this respect, a natural question to ask is whether separation of sender's types becomes more likely under such a smooth or uncertain process. In general, the literature has shown that the information acquisition technology does matter for the selection of equilibria (see Yang, 2015 andDenti, 2016 for recent contributions on the issue). What we argue here is that the pooling outcome retains its prominence also when signal acquisition is not all-or-nothing or is not binary.…”