Selection-free predictions in global games with endogenous information and multiple equilibria

, () and , ()
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,: Department of Economics, Massachusetts Institute of Technology
,: Department of Economics, Northwestern University
Authors registered in the RePEc Author Service: Alessandro Pavan and George-Marios Angeletos

Theoretical Economics, 2013, vol. 8, issue 3

Abstract: Global games with endogenous information often exhibit multiple equilibria. In this paper we show how one can nevertheless identify useful predictions that are robust across all equilibria and that could not have been delivered in the common-knowledge counterparts of these games. Our analysis is conducted within a flexible family of games of regime change, which have been used to model, inter alia, speculative currency attacks, debt crises, and political change. The endogeneity of information originates in the signaling role of policy choices. A novel procedure of iterated elimination of non-equilibrium strategies is used to deliver probabilistic predictions that an outside observer---an econometrician---can form under arbitrary equilibrium selections. The sharpness of these predictions improves as the noise gets smaller, but disappears in the complete-information version of the model.

Keywords: Global games; multiple equilibria; endogenous information; robust predictions (search for similar items in EconPapers)
JEL-codes: C7 D8 E5 E6 F3 (search for similar items in EconPapers)
Date: 2013-09-18
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Citations: View citations in EconPapers (20)

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Related works:
Working Paper: Selection-Free Predictions in Global Games with Endogenous Information and Multiple Equilibria (2012)
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