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Global Games: Theory and Applications

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Abstract

Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of 'diffuse' beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in this setting, review results for general global games, discuss the relationship between global games and a literature on higher order beliefs in game theory and describe the relationship to local interaction and dynamic games with payoff shocks.

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File URL: http://cowles.econ.yale.edu/P/cd/d12b/d1275.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1275.

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Length: 67 pages
Date of creation: Sep 2000
Date of revision:
Publication status: Published in M. Dewatripont, L. Hansen and S. Turnovsky, Advanced in Economics and Econometrics, Vol. 1, 2003
Handle: RePEc:cwl:cwldpp:1275

Note: CFP 1097.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Keywords: Global games; common knowledge; unique equilibrium; currency crises; bank runs and liquidity;

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References

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