Morris, S;
Yang, M;
(2022)
Coordination and Continuous Stochastic Choice.
The Review of Economic Studies
, 89
(5)
pp. 2687-2722.
10.1093/restud/rdab082.
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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.
| Type: | Article |
|---|---|
| Title: | Coordination and Continuous Stochastic Choice |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1093/restud/rdab082 |
| Publisher version: | https://doi.org/10.1093/restud/rdab082 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10135991 |
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