Events at CERGE-EI

Prof. Bernardo de Vasconcellos Guimarães

São Paulo School of Economics, Brazil

Authors: Bernardo Guimaraes and Ana Elisa Pereira

Abstract: We study a dynamic model of coordination with timing frictions and payoff heterogeneity. Flow payoffs depend on a stochastic fundamental, on others' behavior and on idiosyncratic preferences. Agents get opportunities to revise their behavior according to a Poisson clock. The unique equilibrium is characterized by a threshold that determines the choices for each type of agent. We provide analytical solutions for a particular case with linear preferences and very slow moving fundamentals. A lot of conformity emerges: despite payoff heterogeneity, agents' thresholds partially coincide as long as there exists a set of beliefs that would make this coincidence possible -- though they never fully coincide. Moreover, agents' choices are more similar when there is more heterogeneity in their behavior (determined by previous choices). Conformity is not inefficient. The efficient solution would have agents following others even more often and giving less importance to the fundamental.

Full Text:  “Coordination with timing frictions and payoff heterogeneity”