Attention, coordination, and bounded recall

Abstract

I consider a class of strategic interactions under asymmetric information in which, prior to finalizing their actions (consumption, production, or investment decisions), agents choose the attention to allocate to a large number of information sources about exogenous events that are responsible for their payoffs (the underlying fundamentals). I study what type of payoff interdependencies contribute to inefficiency in the allocation of attention. I then compare the results for the benchmark of perfect recall (in which the agents remember the content of individual sources) to those for bounded recall (in which the agents are unable to keep track of the influence of individual sources on posterior beliefs). More generally, the analysis illustrates the implications (for attention and usage of information) of a certain form of bounded rationality whereby the summary statistic the agents recall from the sources they pay attention to is distorted away from the optimal action towards the Bayesian projection of the exogenous fundamentals over the signals received.