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A Herding Perspective On Global Games And Multiplicity

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James S. Costain ()

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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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Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we032908.

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Date of creation: May 2003
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Handle: RePEc:cte:werepe:we032908

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  1. Yin-Wong Cheung & Daniel Friedman, 2009. "Speculative Attacks: A Laboratory Study in Continuous Time," Working Papers 072009, Hong Kong Institute for Monetary Research. [Downloadable!]
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  2. Antonio Cabrales & Rosemarie Nagel & Roc Armenter, 2007. "Equilibrium selection through incomplete information in coordination games: an experimental study," Experimental Economics, Springer, vol. 10(3), pages 221-234, September. [Downloadable!] (restricted)
    Other versions:
  3. John Duffy & Jack Ochs, 2009. "Equilibrium Selection in Static and Dynamic Entry Games," Working Papers 376, University of Pittsburgh, Department of Economics, revised Feb 2009. [Downloadable!]
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