Beauty Contest with Rationally Inattentive Agents

11 Pages Posted: 2 Jun 2014 Last revised: 13 Oct 2022

See all articles by Jeong Ho (John) Kim

Jeong Ho (John) Kim

Florida State University - Department of Finance

Date Written: October 10, 2022

Abstract

In the context of a "beauty-contest" coordination game, agents choose how much costly attention to pay to public information. Introducing information costs based on rational inattention implies that, in the neighborhood of zero information costs, multiple equilibria can emerge in settings that without information costs would imply unique linear equilibrium. Agents have a coordination motive arising from strategic complementarity in their actions, which, in turn, implies coordinating on attention devoted to the public signal. This effect induces multiple equilibrium levels of attention at intermediate levels of transparency of public information for small enough information costs.

Keywords: Beauty contests, Rational inattention, Coordination games, Information acquisition, Multiple equilibria, Public information

Suggested Citation

Kim, Jeong Ho, Beauty Contest with Rationally Inattentive Agents (October 10, 2022). Available at SSRN: https://ssrn.com/abstract=2444456 or http://dx.doi.org/10.2139/ssrn.2444456

Jeong Ho Kim (Contact Author)

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States

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