Strategic Mistakes

78 Pages Posted: 3 Sep 2020 Last revised: 19 Jun 2023

See all articles by Joel P. Flynn

Joel P. Flynn

Yale University

Karthik Sastry

Princeton University - Department of Economics

Date Written: June 18, 2023


To study the equilibrium implications of decision frictions, we introduce a new class of control costs in continuum-player, continuum-action games in which agents interact via an aggregate of the actions of others. The costs that we study accommodate a rich class of decision frictions, including ex post misoptimization, imperfect ex ante planning, cognitive constraints that depend endogenously on the behavior of others, and consideration sets. We provide primitive conditions such that equilibria exist, are unique, are efficient, and feature monotone comparative statics for action distributions, aggregates, and the size of agents' mistakes. We apply the model to make robust equilibrium predictions in a monetary business-cycle model of price-setting with planning frictions and a model of consumption and savings during a liquidity trap when endogenous stress worsens decisions.

Keywords: Equilibrium, Behavioral Macroeconomics, Stochastic Choice

JEL Classification: D5, D8, E1, E7

Suggested Citation

Flynn, Joel P. and Sastry, Karthik, Strategic Mistakes (June 18, 2023). Available at SSRN: or

Joel P. Flynn (Contact Author)

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

Karthik Sastry

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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