DP6506 Knowing What Others Know: Coordination Motives in Information Acquisition

Author(s): Christian Hellwig, Laura Veldkamp
Publication Date: October 2007
Keyword(s): Costly Information Acquisition, Price-setting, Strategic Complementarities
JEL(s): C72, D82, D83, E31
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6506

We explore how optimal information choices change the predictions of strategic models. When a large number of agents play a game with strategic complementarity, information choices exhibit complementarity as well: If an agent wants to do what others do, they want to know what others know. This makes heterogeneous beliefs difficult to sustain and may generate multiple equilibria. In models with substitutability, agents prefer to differentiate their information choices. We use these theoretical results to determine the role of information choice in recent price-setting models and to propose modeling techniques that ensure equilibrium uniqueness.