Sequential Coordination, Higher-Order Belief Dynamics and E-Stability Principle

Abstract

This paper explores convergence in higher-order beliefs - otherwise called eductive stability - when coordination is sequential, that is, when each agent of a given type fixes his own actions after observing the ones of earlier types in a given order. The presence of sequential types enhances expectational coordination in case of strategic substitutability, but not in case of strategic complementarity. In particular eductive stability can be obtained for any degree of substitutability, provided the number of sequential types is large enough. Therefore, sequential coordination opens up to the possibility that eductive convergence occurs at the same conditions of adaptive convergence, in accordance to the E-stability principle.

Keywords: eductive learning, rational expectation equilibria, rationalizable set, learning in macroeconomics, coordination games

JEL Classification: D41, E30, B41