“Coordination with Flexible Information Acquisition” by Ming Yang
We study flexible information acquisition in a coordination game. "Flexible" means that players choose not only how much information to acquire, but also the qualitative nature of their information. Information acquisition incurs a cost proportional to reduction of entropy. Hence, players can and will collect information most relevant to their welfare but be rationally inattentive to other aspects of the fundamental. When information is cheap, this flexibility enables players to acquire information that makes efficient coordination possible, while also leads to multiple equilibria. This result contrasts with the global game literature, where information structure is less flexible and cheap information leads to unique equilibrium with inefficient coordination. We also go beyond the entropic information cost to highlight the key aspects of flexibility and how they drive our results.