Speculative attacks and financial architecture: experimental analysis of coordination games with public and private information

Frank Heinemann, Rosemarie Nagel and Peter Ockenfels

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Speculative Attacks can be modeled 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. In both treatments subjects use so-called threshold strategies that lie in between the risk dominant and payoff dominant equilibrium of the underlying complete information game. Our evidence suggests that there are no destabilizing effects due to public information. In contrary, predictability of attacks is slightly higher with public than with private information, but prior probability of attacks is also higher with public information. We also test the predictive power of refinement theories to explain actual behavior and reactions to parameter changes.

Keywords: coordination game; global game; payoff dominance; private information; public information; risk dominance; strategic uncertainty; supermodular game (search for similar items in EconPapers)
JEL-codes: C72 C91 E58 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2002-07-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Speculative Attacks and Financial Architecture: Experimental Analysis of Coordination Games with Public and Private Information (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24935

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