Crises: Equilibrium Shifts and Large Shocks

Stephen Morris and Muhamet Yildiz ()

American Economic Review, 2019, vol. 109, issue 8, 2823-54

Abstract: We study the informational events that trigger equilibrium shifts in coordination games with incomplete information. Assuming that the distribution of the changes in fundamentals has fat tails, we show that majority play shifts either if fundamentals reach a critical threshold or if there are large common shocks, even before the threshold is reached. The fat-tail assumption matters because it implies that large shocks make players more unsure about whether their payoffs are higher than others. This feature is crucial for large shocks to matter.

JEL-codes: C72 C73 D83 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/aer.20170159
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20170159 (application/pdf)
https://www.aeaweb.org/doi/10.1257/aer.20170159.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Crises: Equilibrium Shifts and Large Shocks (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:109:y:2019:i:8:p:2823-54

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().