In economics and game theory, global games are games of incomplete information where players receive possibly-correlated signals of the underlying state of the world. Global games were originally defined by Carlsson and van Damme (1993).
Economics is the social science that studies the production, distribution, and consumption of goods and services.
Game theory is the study of mathematical models of strategic interaction between rational decision-makers. It has applications in all fields of social science, as well as in logic and computer science. Originally, it addressed zero-sum games, in which one person's gains result in losses for the other participants. Today, game theory applies to a wide range of behavioral relations, and is now an umbrella term for the science of logical decision making in humans, animals, and computers.
The most important practical application of global games has been the study of crises in financial markets such as bank runs, currency crises, and bubbles. However, they have other relevant applications such as investments with payoff complementarities, beauty contests, political riots and revolutions, and any other economic situation which displays strategic complementarity.
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy.
A currency crisis is a situation in which serious doubt exists as to whether a country's central bank has sufficient foreign exchange reserves to maintain the country's fixed exchange rate. The crisis is often accompanied by a speculative attack in the foreign exchange market. A currency crisis results from chronic balance of payments deficits, and thus is also called a balance of payments crisis. Often such a crisis culminates in a devaluation of the currency.
Stephen Morris and Hyun Song Shin (1998)considered a stylized currency crises model, in which traders observe the relevant fundamentals with small noise, and show that this leads to the selection of a unique equilibrium. This result overturns the result in models of complete information, which feature multiple equilibria.
Stephen Edward Morris is an economic theorist and game theorist especially known for his research in the field of global games. In 2007 he became the Alexander Stewart 1886 Professor of Economics at Princeton University. He was the editor of Econometrica for the period 2007–2011.
In economics and game theory, complete information is an economic situation or game in which knowledge about other market participants or players is available to all participants. The utility functions, payoffs, strategies and "types" of players are thus common knowledge.
One concern with the robustness of this result is that the introduction of a theory of prices in global coordination games may reintroduce multiplicity of equilibria (Atkeson, 2001). This concern was addressed in Angeletos and Werning (2006)and Hellwig et al.(2006). They show that equilibrium multiplicity may be restored by the existence of prices acting as an endogenous public signal, provided that private information is sufficiently precise.
In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium. General equilibrium theory contrasts to the theory of partial equilibrium, which only analyzes single markets.
New Keynesian economics is a school of contemporary macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroeconomics.
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In mathematical economics, the Arrow–Debreu model suggests that under certain economic assumptions there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy.
In economics, the term sunspots usually refers to an extrinsic random variable, that is, a random variable that does not affect economic fundamentals. Sunspots can also refer to the related concept of extrinsic uncertainty, that is, economic uncertainty that does not come from variation in economic fundamentals. David Cass and Karl Shell coined the term sunspots as a suggestive and less technical way of saying "extrinsic random variable".
The Cass criterion, also known as the Malinvaud–Cass criterion, is a central result in theory of overlapping generations models in economics. It is named after David Cass.
Jacques H. Drèze is a Belgian economist noted for his contributions to economic theory, econometrics, and economic policy as well as for his leadership in the economics profession. Drèze was the first President of the European Economic Association in 1986 and was the President of the Econometric Society in 1970.
George-Marios Angeletos is a Greek economist who is a Professor of Economics at University of Zürich and Massachusetts Institute of Technology (MIT).
Christian Hellwig is a German economic theorist and macroeconomist who did research in the field of global games. He is the editor of the Journal of Economic Theory.
Hyun Song Shin (Hangul: 신현송) is a South Korean economic theorist and financial economist who focuses on global games. He has been the Economic Adviser and Head of Research of the Bank for International Settlements (BIS) since May 1, 2014.
A Markov perfect equilibrium is an equilibrium concept in game theory. It is the refinement of the concept of subgame perfect equilibrium to extensive form games for which a pay-off relevant state space can be readily identified. The term appeared in publications starting about 1988 in the work of economists Jean Tirole and Eric Maskin. It has since been used, among else, in the analysis of industrial organization, macroeconomics and political economy.
Disequilibrium macroeconomics is a tradition of research centered on the role of disequilibrium in economics. This approach is also known as non-Walrasian theory, equilibrium with rationing, the non-market clearing approach, and non-tâtonnement theory. Early work in the area was done by Don Patinkin, Robert W. Clower, and Axel Leijonhufvud. Their work was formalized into general disequilibrium models, which were very influential in the 1970s. American economists had mostly abandoned these models by the late 1970s, but French economists continued work in the tradition and developed fixprice models.
Self-fulfilling crisis refers to a situation that a financial crisis is not directly caused by the unhealthy economic fundamental conditions or improper government policies, but a consequence of pessimistic expectations of investors. In other words, investors’ fear of the crisis makes the crisis inevitable, which justified their initial expectations.
Huw David Dixon, born 1958, is a British economist. He has been a professor at Cardiff Business School since 2006, having previously been Head of Economics at the University of York (2003–2006) after being a Professor of economics there (1992–2003), and the University of Swansea (1991–1992), a Reader at Essex University (1987–1991) and a lecturer at Birkbeck College 1983–1987.
In microeconomics, the Bertrand–Edgeworth model of price-setting oligopoly looks at what happens when there is a homogeneous product where there is a limit to the output of firms which they are willing and able to sell at a particular price. This differs from the Bertrand competition model where it is assumed that firms are willing and able to meet all demand. The limit to output can be considered as a physical capacity constraint which is the same at all prices, or to vary with price under other assumptions.
Xavier Vives is a Spanish economist regarded as one of the main figures in the field of industrial organization and, more broadly, microeconomics. He is currently Chaired Professor of Regulation, Competition and Public Policies, and academic director of the Public-Private Sector Research Center at IESE Business School in Barcelona.
Eric Eleterius Coralie van Damme is a Dutch economist and Professor of Economics at the Tilburg University, known for his contributions to game theory.
Kenneth Saul "Ken" Rogoff is an American economist and chess Grandmaster. He is the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University.
The MIT Press is a university press affiliated with the Massachusetts Institute of Technology (MIT) in Cambridge, Massachusetts.