Too Much of a Good Thing: Attention Misallocation and Social Welfare in Coordination Games
Heng Chen,
Yulei Luo () and
Guangyu Pei
MPRA Paper from University Library of Munich, Germany
Abstract:
This paper examines the welfare properties of “beauty contest” games with rationally inattentive agents. Agents allocate attention between private and public signals to reduce the uncertainty about observation noises. In this setting, social welfare may not necessarily increase with the capacity to process information, and can actually decrease as a result of attention misallocation. Strikingly, social welfare can be even higher when agents possess a finite amount of capacity than when they have an infinite amount of capacity. We derive sufficient and necessary conditions under which multiple equilibria emerge and study the implications of equilibrium multiplicity for macroeconomic policies.
Keywords: Coordination game; social welfare; rational inattention (search for similar items in EconPapers)
JEL-codes: C72 D60 E58 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-gth, nep-hpe, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://mpra.ub.uni-muenchen.de/59139/1/MPRA_paper_59139.pdf original version (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59139
Access Statistics for this paper
More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().