Premium
Information Transparency and Coordination Failure: Theory and Experiment
Author(s) -
ANCTIL REGINA M.,
DICKHAUT JOHN,
KANODIA CHANDRA,
SHAPIRO BRIAN
Publication year - 2004
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/j.1475-679x.2004.00134.x
Subject(s) - transparency (behavior) , economics , welfare , microeconomics , dominance (genetics) , equilibrium selection , perspective (graphical) , coordination failure , public economics , actuarial science , computer science , game theory , repeated game , chemistry , gene , biochemistry , computer security , artificial intelligence , market economy
We examine the effect of higher order beliefs on the ability of decentralized decision makers to coordinate and take advantage of improvements in information transparency that can increase welfare. Theories that address this question have not been empirically explored. We study coordination in a laboratory experiment with privately informed decision makers. Economic outcomes in the setting depend both on agents' rational beliefs regarding economic fundamentals and on their rational beliefs regarding the beliefs of other agents. Increasing information transparency mitigates uncertainty about economic fundamentals but may increase strategic uncertainty, precipitating multiple equilibria and less efficient group outcomes. We provide evidence that sometimes the equilibrium attained by creditors is inferior from a welfare perspective to other available equilibria. Risk dominance appears to determine equilibrium selection in our setting.