Document Type
Article
Publication Date
2008
Abstract
This study experimentally tests the effect of information transparency on the probability of coordination failure in global games with finite signals. Prior theory has shown that in global games with unique equilibrium, the effect of information transparency is ambiguous. We find that in global games where the signal space is finite, increased transparency has two effects. First, increasing the level of transparency usually destroys uniqueness and precipitates multiple equilibria, so that the effect of transparency on coordination depends crucially upon which equilibrium is actually attained. Second, the level of transparency determines which of these equilibria is risk dominant. We find that increased transparency facilitates coordination only if it switches the risk-dominant equilibrium from the secure equilibrium to the efficient equilibrium. When the converse is true, improved transparency can be dysfunctional because it increases the probability of coordination failure.
Recommended Citation
Antci, R.M., Dickhaut, J., Johnson, C., & Kanodia, C. (2008). Does information transparency decrease coordination failure? ESI Working Paper 08-05. Retrieved from http://digitalcommons.chapman.edu/esi_working_papers/144
Comments
Working Paper 08-05