Rational Inattention Dynamics in Stochastic Games: Coordination and Conditioning
19 Pages Posted: 19 Apr 2021
Date Written: April 17, 2021
Decision-makers that choose information strategies instead of concrete actions elect stochastic choice rules that leave open the potential for errors, which can obfuscate the strategic interactions of players. This article establishes that dynamic, stochastic, games with rationally inattentive agents have Nash equilibria in which players coordinate their choice rules. When these choice rules are compliant with the predisposition of players towards particular actions, the Nash equilibria can be expressed in terms of dynamic logit rules. This result reduces finding Nash equilibria of this type to establishing a joint distribution of actions and states that accommodates the optimal behavior of all players. Logit rule Nash equilibria are used to study an example of strategic coordination, and an example of a zero-sum, strategic conflict game with sequential moves. The resulting equilibria of the second example involve strategies that exhibit conditioning characteristics and can be relevant for applications in principal-agent problems.
Keywords: Rational inattention, stochastic games, dynamic logit, Nash equilibria, choice rules, information acquisition
JEL Classification: C71, C72, C73, D82, D83, D91
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