Informational Puts

TL;DR

This paper studies how to optimally provide information in coordination games to achieve the largest equilibrium, showing that a specific informational policy can be uniquely and sequentially optimally implemented.

Contribution

It introduces the concept of an informational put, a novel policy that ensures unique and optimal implementation of the largest equilibrium in binary-action coordination games.

Findings

Largest equilibrium can be uniquely implemented.

The informational policy is sequentially optimal.

No multiplicity or commitment gaps exist.

Abstract

We analyze how dynamic information should be provided to uniquely implement the largest equilibrium in binary-action coordination games. The designer offers an informational put: she stays silent if players choose her preferred action, but injects asymmetric and inconclusive public information if they lose faith. There is (i) no multiplicity gap: the largest (partially) implementable equilibrium can be implemented uniquely; and (ii) no commitment gap: the policy is sequentially optimal. Our results have sharp implications for the design of policy in coordination environments.