Working Paper: CEPR ID: DP6506
Authors: Christian Hellwig; Laura Veldkamp
Abstract: 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.
Keywords: costly information acquisition; price-setting; strategic complementarities
JEL Codes: C72; D82; D83; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information acquisition (D83) | action alignment (D74) |
| complementarity in information acquisition (D83) | number of equilibria (C62) |
| actions are complements (D10) | information acquisition is complementary (D83) |
| actions are substitutes (D10) | decrease in value of shared information (D83) |
| well-informed agents (D82) | aggregate actions covary highly with true state (C10) |
| information acquisition (D83) | macroeconomic outcomes (E66) |