Global game
{{see also|Globle (game)}}
In economics and game theory, global games are games of incomplete information where players receive possibly-correlated signals of the underlying state of the world. Global games were originally defined by Carlsson and van Damme (1993).{{cite journal |first1=Hans |last1=Carlsson |first2=Eric |last2=van Damme |year=1993 |title=Global Games and Equilibrium Selection |journal=Econometrica |volume=61 |issue=5 |pages=989–1018 |doi=10.2307/2951491 |jstor=2951491 |url=http://www.dklevine.com/archive/refs4122247000000001088.pdf }}
The most important practical application of global games has been the study of crises in financial markets such as bank runs, currency crises, and bubbles. However, they have other relevant applications such as investments with payoff complementarities, beauty contests, political riots and revolutions, and any other economic situation which displays strategic complementarity.
Global games in models of currency crises
Stephen Morris and Hyun Song Shin (1998) considered a stylized currency crises model, in which traders observe the relevant fundamentals with small noise, and show that this leads to the selection of a unique equilibrium.{{cite journal |first1=Stephen |last1=Morris |first2=Hyun Song |last2=Shin |year=1998 |title=Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks |journal=American Economic Review |volume=88 |issue=3 |pages=587–97 |jstor=116850 }} This result overturns the result in models of complete information, which feature multiple equilibria.
One concern with the robustness of this result is that the introduction of a theory of prices in global coordination games may reintroduce multiplicity of equilibria.{{cite book |first=Andrew G. |last=Atkeson |year=2001 |chapter=Rethinking Multiple Equilibria in Macroeconomic Modeling: Comment |title=NBER Macroeconomics Annual 2000 |editor-first=Ben S. |editor-last=Bernanke |editor-link=Ben S. Bernanke |editor2-first=Kenneth |editor2-last=Rogoff |editor2-link=Kenneth Rogoff |pages=162–71 |location=Cambridge, MA |publisher=MIT Press }} This concern was addressed in Angeletos and Werning (2006) as well as Hellwig and coauthors (2006).{{cite journal |first1=George-Marios |last1=Angeletos |first2=Ivan |last2=Werning |year=2006 |title=Crises and Prices: Information Aggregation, Multiplicity, and Volatility |journal=American Economic Review |volume=96 |issue=5 |pages=1720–36 |doi=10.1257/aer.96.5.1720 |hdl=1721.1/63311 |hdl-access=free }}{{cite journal |first1=Christian |last1=Hellwig |first2=Arijit |last2=Mukherji |first3=Aleh |last3=Tsyvinski |year=2006 |title=Self-Fulfilling Currency Crises: The Role of Interest Rates |journal=American Economic Review |volume=96 |issue=5 |pages=1769–1787 |doi=10.1257/aer.96.5.1769 |url=http://www.nber.org/papers/w11191.pdf }} They show that equilibrium multiplicity may be restored by the existence of prices acting as an endogenous public signal, provided that private information is sufficiently precise.
References
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Further reading
- {{cite journal |first1=José |last1=Jorge |first2=Joana |last2=Rocha |title=A Primer on Global Games applied to Macroeconomics and Finance |journal=Journal of Economic Surveys |volume=29 |issue=5 |year=2015 |pages=869–886 |doi=10.1111/joes.12071 |s2cid=154093787 |doi-access=free }}
- {{cite journal |first1=Stephen |last1=Morris |first2=Hyun S. |last2=Shin |year=2001 |title=Global Games: Theory and Applications |journal=Cowles Foundation Discussion Paper |volume=1275R |ssrn=284813 }}
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