Information Design in Coordination Games with Risk Dominant Equilibrium Selection

26 Pages Posted: 24 Apr 2020

See all articles by Michael Ebert

Michael Ebert

University of Paderborn

Joseph (Jay) B. Kadane

Carngeie Mellon University; Carnegie Mellon University - David A. Tepper School of Business

Dirk Simons

University of Mannheim - Accounting and Taxation

Jack Douglas Stecher

University of Alberta - Department of Accounting, Operations & Information Systems

Date Written: March 30, 2020

Abstract

We study the design of public information structures that maximize the probability of selecting a Pareto dominant equilibrium in symmetric (2 x 2) coordination games. Because the need to coordinate exposes players to strategic risk, we treat the designer as able to implement an equilibrium only if the players believe it is also risk dominant. The designer's task is therefore to pool the set of states in which the desired equilibrium is risk dominant with the largest possible set in which it is not, while keeping the desired equilibrium risk dominant in expectation. We provide a simple characterization of the optimal signal structure which holds under general conditions. We extend the analysis to related problems, and show that our intuition is robust, suggesting that our approach provides a promising way forward for a large class of problems in constrained information design.

Keywords: Bayesian Persuasion, Coordination, Information Design, Neyman-Pearson Lemma, Risk Dominance

JEL Classification: C70, C72, D82, D83

Suggested Citation

Ebert, Michael and Kadane, Joseph (Jay) B. and Simons, Dirk and Stecher, Jack Douglas, Information Design in Coordination Games with Risk Dominant Equilibrium Selection (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3564451 or http://dx.doi.org/10.2139/ssrn.3564451

Michael Ebert

University of Paderborn ( email )

Warburger Str. 100
Paderborn, D-33098
Germany

Joseph (Jay) B. Kadane

Carngeie Mellon University ( email )

Department of Statistics
Pittsburgh, PA 15213-3890
United States

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Dirk Simons

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Jack Douglas Stecher (Contact Author)

University of Alberta - Department of Accounting, Operations & Information Systems ( email )

Edmonton, Alberta T6G 2R6
Canada

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