Events at CERGE-EI

Tetsuya Hoshino

Pennsylvania State University, USA

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Author: Tetsuya Hoshino

Abstract: I study an incomplete-information game with information acquisition. As in the theory of rational inattention, players flexibly choose what information to acquire, but such information is costly. If information costs were zero, players would learn the state, thereby reducing the game to one of complete information. The complete-information game, typically with multiple equilibria, can thus be approximated by a nearby incomplete-information game with small information costs. In this paper, I model these costs using a general nonparametric form, which includes Shannon entropy costs as a special case. The main result is that any strict Nash equilibrium of the complete-information game is arbitrarily close to the unique equilibrium of a nearby incomplete-information game with some small information costs. This result has the implication, for instance, that in a 2 × 2 coordination game, even the non-risk-dominant equilibrium is robust in this sense.
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Full Text:  “Rational Inattention in Games”