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Ambiguity and Coordination in a Global. Game Model of Financial Crises

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  • Daniel Laskar

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA))

Abstract

We consider a two-player global game where creditors, who finance some investment project, have to decide whether to roll over their loans or not. We use a non-Bayesian approach where creditors exhibit some aversion to ambiguity. We show that an increase in ambiguity reduces the perceived coordination of players in rolling over their loans. This contibutes to increasing the probability of a financial crisis, and therefore provides an additional argument in favor of transparency in the model considered.

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Bibliographic Info

Paper provided by HAL in its series PSE Working Papers with number halshs-00749500.

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Date of creation: Nov 2012
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Handle: RePEc:hal:psewpa:halshs-00749500

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00749500
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Keywords: Financial crises ; Ambiguity ; Uncertainty ; Global games ; Coordination ; Transparency;

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References

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  1. Carlsson, H. & Damme, E.E.C. van, 1990. "Global games and equilibrium selection," Discussion Paper 1990-52, Tilburg University, Center for Economic Research.
  2. repec:hal:cesptp:halshs-00086021 is not listed on IDEAS
  3. Gajdos, Thibault & Tallon, Jean-Marc & Vergnaud, Jean-Christophe, 2004. "Decision making with imprecise probabilistic information," Journal of Mathematical Economics, Elsevier, vol. 40(6), pages 647-681, September.
  4. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  5. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  6. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  7. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
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Cited by:
  1. Laskar, Daniel, 2014. "Ambiguity and perceived coordination in a global game," Economics Letters, Elsevier, vol. 122(2), pages 317-320.
  2. Daniel Laskar, 2013. "Ambiguity, Pessimism, Optimism and Financial Crises in a Simple Global Game Model," PSE Working Papers hal-00811923, HAL.
  3. repec:hal:wpaper:hal-00811923 is not listed on IDEAS

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