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A Herding Perspective on Global Games and Multiplicity

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  • James S. Costain

    (Bank of Spain)

Abstract

Recently, it has been claimed that full-information multiple equilibria in games with strategic complementarities are not robust, because generalizing to allow slightly heterogeneous information implies uniqueness. This paper argues that this "global games" uniqueness result is itself not robust. If we generalize by allowing most agents to observe a few previous actions before choosing, instead of forcing players to move exactly simultaneously, then multiplicity of outcomes is restored. Only a small sample of observations is needed to make our herding equilibrium behave like a full-information sunspot equilibrium instead of a global games equilibrium.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1128&context=bejte
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 7 (2007)
Issue (Month): 1 ()
Pages: 22

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Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:22

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Web page: http://www.degruyter.com

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Related research

Keywords: herding; global games; sunspots; uniqueness; heterogeneity;

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Cited by:
  1. John Duffy, 2009. "Equilibrium Selection in Static and Dynamic Entry Games," Working Papers 376, University of Pittsburgh, Department of Economics, revised Dec 2011.
  2. Rosa-García, Alfonso & Kiss, Hubert Janos, 2011. "Coordination structures," MPRA Paper 30463, University Library of Munich, Germany.
  3. Yin-Wong Cheung & Daniel Friedman, 2009. "Speculative Attacks: A Laboratory Study in Continuous Time," Working Papers 072009, Hong Kong Institute for Monetary Research.
  4. Rosemarie Nagel & Antonio Cabrales & Roc Armenter, 2002. "Equilibrium selection through incomplete information in coordination games: An experimental study," Economics Working Papers 601, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Schotter, Andrew & Yorulmazer, Tanju, 2009. "On the dynamics and severity of bank runs: An experimental study," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 217-241, April.
  6. Tai-kuang Ho & Ming-yen Wu, 2012. "Third-person Effect and Financial Contagion in the Context of a Global Game," Open Economies Review, Springer, vol. 23(5), pages 823-846, November.

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