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Efficient dynamic coordination with individual learning

Dasgupta, Amil, Steiner, Jakub and Stewart, Colin (2007) Efficient dynamic coordination with individual learning. Discussion paper, 600. Financial Markets Group, London School of Economics and Political Science, London, UK.

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Abstract

We study how the presence of multiple participation opportunities coupled with individual learning about payoffs affects the ability of agents to coordinate efficiently in global coordination games. Two players face the option to invest irreversibly in a project in one of many rounds. The project succeeds if some underlying state variable è is positive and both players invest, possibly asynchronously. In each round they receive informative private signals about è, and asymptotically learn the true value of è. Players choose in each period whether to invest or to wait for more precise information about è. We show that with sufficiently many rounds, both players invest with arbitrarily high probability whenever investment is socially efficient, and delays in investment disappear when signals are precise. This result stands in sharp contrast to the usual static global game outcome in which players coordinate on the risk-dominant action. We provide a foundation for these results in terms of higher order beliefs.

Item Type: Monograph (Discussion Paper)
Official URL: http://fmg.lse.ac.uk
Additional Information: © 2007 The Authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 600
Date Deposited: 16 Jul 2009 14:58
URL: http://eprints.lse.ac.uk/24498/

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