Global Games in Ames 2016

An Economic Theory Conference at Iowa State University

Dates: Friday-Saturday, April 8-9, 2016

Organizer: David M. Frankel (tel. 515-294-6263)


Global Games in Ames 2016, a conference in economic theory, took place in the Economics Dept. at Iowa State University on Friday afternoon and Saturday morning, April 8 and 9, 2016.

Group Picture

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Conference Program

Poster Session

What Are Global Games?

Global games are a relatively new approach to using economic theory to make predictions in collective action problems. In a collective action problem, a set of agents choose whether or not to take an action, where an agent's benefit from taking the action is higher if other agents also do so. Many economic interactions fit this description. A few examples are as follows.

Collective action problems raise interesting theoretical issues. First, they typically have two equilibria (stable outcomes): one in which all agents invest, and another in which no agents invest. This multiplicity makes prediction difficult. Thus, there is an interest in finding modelling approaches that can yield a unique equilibrium. Second, when there are two equilibria, the one in which more agents invest is typically better for the agents (Pareto dominant). This raises the question of whether there are cheap public interventions that can lead the agents to choose the good equilibrium.

One approach to sharpening predictions in collective action problems is global games. Global games were first studied by Carlsson and van Damme [5], who study games with two players (e.g., firms considering a joint project) each of whom chooses between two actions (e.g., invest and not invest). They show that if, instead of the game's payoffs being common knowledge, each player receives a slightly noisy signal of these payoffs, there is a unique equilibrium. This result has been generalized to arbitrary numbers of players and actions, as well as other information and payoff structures. The global games prediction has strong experimental support (e.g., Heinemann, Nagel, and Ockenfels [11]).

In the global games equilibrium, small shocks can lead to large shifts in aggregate behavior. This makes global games useful for studying aggregate fluctuations and crises. Global games have helped economists understand international contagion and bank runs (Goldstein and Pauzner [9, 10]), currency crises and debt pricing (Morris and Shin [12,13]), business cycles (Burdzy and Frankel [4]), investment cycles (Chamley [6], Oyama [14]), merger waves (Toxvaerd [15]), competing computer platforms (Argenziano [3]), and recurrent crises (Frankel [7]). Researchers have also used global games to study how policy can bring about the efficient use of information (Angeletos and Pavan [1,2]) and reduce the need for bailouts (Frankel [8]).


[1] Angeletos, George-Marios, and Alessandro Pavan. 2007. "Efficient Use of Information and Social Value of Information." Econometrica 75:1103-1142.

[2] ------. 2009. "Policy with Dispersed Information." Journal of the European Economic Association 7:11-60.

[3] Argenziano, Rossella. 2008. "Differentiated Networks: Equilibrium and Efficiency." RAND Journal of Economics 39:747-769.

[4] Burdzy, Krzysztof, and David M. Frankel. 2005. "Shocks and Business Cycles." Advances in Theoretical Economics vol. 5, iss. 1, paper no. 2.

[5] Carlsson, Hans, and Eric van Damme. 1993. "Global Games and Equilibrium Selection." Econometrica 61:989-1018.

[6] Chamley, Christophe. 1999. "Coordinating Regime Switches." Quarterly Journal of Economics 114:869-905.

[7] Frankel, David M. 2012. "Recurrent Crises in Global Games." Journal of Mathematical Economics 48:309-321.

[8] -----. 2015. "Insuring Customers of a Unionized Firm Against Loss of Network Benefits." Under revision, Journal of Economic Theory.

[9] Goldstein, Itay, and Ady Pauzner. 2004. "Contagion of Self-Fulfilling Financial Crises due to Diversification of Investment Portfolios." Journal of Economic Theory 119:151-83.

[10] -----. 2005. "Demand-Deposit Contracts and the Probability of Bank Runs." Journal of Finance 60:1293-1327.

[11] Heinemann, Frank, Rosemarie Nagel, and Peter Ockenfels. 2009. "Measuring Strategic Uncertainty in Coordination Games." Review of Economic Studies 76:181-221.

[12] Morris, Stephen, and Hyun Song Shin. 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks." American Economic Review 88:587-597.

[13] -----. 2004. "Coordination Risk and the Price of Debt." European Economic Review 48:133-53.

[14] Oyama, Daisuke. 2004. "Booms and Slumps in a Game of Sequential Investment with the Changing Fundamentals." Japanese Economic Review 55:311-20.

[15] Toxvaerd, Flavio. 2008. "Strategic Merger Waves: A Theory of Musical Chairs." Journal of Economic Theory 140:1-26.

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