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Journal Article

Observing Each Other's Observations in a Bayesian Coordination Game

MPS-Authors

Grafenhofer,  Dominik
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Kuhle,  Wolfgang
Max Planck Institute for Research on Collective Goods, Max Planck Society;

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Citation

Grafenhofer, D., & Kuhle, W. (2016). Observing Each Other's Observations in a Bayesian Coordination Game. Journal of Mathematical Economics, 67, 10-17.


Cite as: http://hdl.handle.net/11858/00-001M-0000-002B-8277-C
Abstract
We study a Bayesian coordination game where agents receive private information on the game’s payoff structure. In addition, agents receive private signals that inform them of each other’s private information. We show, that once agents possess these different types of information, there exists a coordination game in the evaluation of this information. Even though the precisions of both signal types are exogenous, the precision with which agents forecast each other’s actions in equilibrium turns out to be endogenous. As a consequence, there exist multiple equilibria which differ with regard to the way that agents weight their private information to forecast each other’s actions.