We analyze non-fundamental volatility and efficiency in large games featuring strategic interaction and endogenous information acquisition. We adopt the rational inattention approach to information acquisition but generalize to a large class of information costs. Agents can learn about exogenous states and endogenous aggregate actions. We provide sufficient conditions on information costs that guarantee the existence of efficient or inefficient equilibria, and another set of sufficient conditions that guarantee the existence or non-existence of equilibria with zero non-fundamental volatility. Mutual information, the cost typically assumed in rational inattention models, guarantees the existence of an efficient equilibrium with zero non-fundamental volatility.
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