Strategic Ambiguity in Global Games

Takashi Ui
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Takashi Ui: Hitotsubashi University

No 32, Working Papers on Central Bank Communication from University of Tokyo, Graduate School of Economics

Abstract: In incomplete information games with ambiguous information, rational behavior depends on fundamental ambiguity (ambiguity about states) and strategic ambiguity (ambiguity about others’ actions). We study the impact of strategic ambiguity in global games, which is evident when one of the actions yields a constant payoff. Ambiguous-quality information makes more players choose this action, whereas (unambiguous) low-quality information makes more players choose an ex-ante best response to the uniform belief over the opponents’ actions. If the ex-ante best-response action yields a constant payoff, sufficiently ambiguous-quality information makes most players choose this action, thus inducing a unique equilibrium, whereas sufficiently low-quality information generates multiple equilibria. In applications to financial crises, we demonstrate that news of more ambiguous quality triggers a debt rollover crisis, whereas news of less ambiguous quality triggers a currency crisis.

JEL-codes: C72 D81 D82 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-03
New Economics Papers: this item is included in nep-exp, nep-gth and nep-mic
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