Global Games: Theory and Applications

70 Pages Posted: 27 Sep 2001

See all articles by Stephen Morris

Stephen Morris

MIT

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: August 2001

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 games and dynamic games with payoff shocks.

Keywords: Common Knowledge, Coordination, Currency Crises, Global Games, Higher Order Beliefs, Unique Equilibrium

JEL Classification: C72, D82

Suggested Citation

Morris, Stephen Edward and Shin, Hyun Song, Global Games: Theory and Applications (August 2001). Cowles Foundation Discussion Paper No. 1275R. Available at SSRN: https://ssrn.com/abstract=284813

Stephen Edward Morris (Contact Author)

MIT ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://economics.mit.edu/faculty/semorris

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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