Speculative Attacks and Financial Architecture: Experimental Analysis of Coordination Games with Public and Private Information

42 Pages Posted: 7 Mar 2002

See all articles by Frank Heinemann

Frank Heinemann

Berlin Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute)

Rosemarie Nagel

Universitat Pompeu Fabra - Department of Economics

Peter Ockenfels

Goethe University Frankfurt - Institute of Economics

Date Written: February 15, 2002

Abstract

Speculative Attacks can be modelled as a coordination game with multiple equilibria if the state of the economy is common knowledge. With private information there is a unique equilibrium. This raises the question whether public information may be destabilizing by allowing for self-fulfilling beliefs. We present an experiment that imitates a speculative attacks model and compare sessions with public and private information. Our evidence suggests that there is no reason to belief that public information leads to self-fulfilling beliefs. Predictability of attacks is slightly higher with public than with private information, but prior probability of attacks is also higher with public information.

Statistical tests reject payoff dominance, risk dominance and maximum strategies as selection criteria. With public information subjects coordinate on equilibria somewhere between payoff dominant and risk dominant equilibrium. Reactions to parameter changes go into the directions predicted by risk dominance. Observed strategies can be explained by independent beliefs on other subjects attacking with a given probability.

Keywords: coordination game, global game, payoff dominance, private information, public information, risk dominance, strategic uncertainty, supermodular game

JEL Classification: C72, C91, E58

Suggested Citation

Heinemann, Frank and Nagel, Rosemarie and Ockenfels, Peter, Speculative Attacks and Financial Architecture: Experimental Analysis of Coordination Games with Public and Private Information (February 15, 2002). Available at SSRN: https://ssrn.com/abstract=302820 or http://dx.doi.org/10.2139/ssrn.302820

Frank Heinemann

Berlin Institute of Technology ( email )

Strasse des 17. Juni 135
H 52
Berlin, 10623
Germany

HOME PAGE: http://www.macroeconomics.tu-berlin.de/Heinemann.html

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Rosemarie Nagel (Contact Author)

Universitat Pompeu Fabra - Department of Economics ( email )

Ramon Trias Fargas 25-27
08005 Barcelona
Spain
+34 93 542 3729 (Phone)
+34 93 542 1746 (Fax)

Peter Ockenfels

Goethe University Frankfurt - Institute of Economics ( email )

In house Post Box 81
Frankfurt am Main 60054
Germany

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