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Coordination and Continuous Stochastic Choice.

Players receive a return to investment that is increasing in the proportion of others who invest and the state and incur a small cost for acquiring information about the state. Their information is reflected in a stochastic choice rule, specifying the probability of a signal leading to investment. I...

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Published in:Review of Economic Studies Vol. 89; no. 5; pp. 2687 - 2723
Main Authors: Morris, Stephen, Yang, Ming
Format: Article
Published: Oxford University Press / USA Oct2022
Subjects:
Small states
Functionals
Online Access:View this record in EBSCOhost
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      dt: Oct2022
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      pub: Oxford University Press / USA
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        atl: Coordination and Continuous Stochastic Choice.
      aug:
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          Morris, Stephen
          Yang, Ming
        affil:
          Department of Economics, Massachusetts Institute of Technology
          Department of Economics and School of Management, University College London
      su:
        Small states
        Functionals
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          Small states
          Functionals
      ab: Players receive a return to investment that is increasing in the proportion of others who invest and the state and incur a small cost for acquiring information about the state. Their information is reflected in a stochastic choice rule, specifying the probability of a signal leading to investment. If discontinuous stochastic choice rules are infinitely costly, there is a unique equilibrium as costs become small, in which actions are a best response to a uniform (Laplacian) belief over the proportion of others investing. Infeasibility of discontinuous stochastic choice rules captures the idea that it is impossible to perfectly distinguish states that are arbitrarily close together and is both empirically documented and satisfied by many natural micro-founded cost functionals on information. Our results generalize global game selection results and establish that they do not depend on the specific additive noise information structure.
      pubtype: Academic Journal
      doctype: Article
      src: R
    language: English
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