Global Games: Theory and Applications∗

Global games are games of incomplete information whose type space is determined by the players each observing a noisy signal of the underlying state. With strategic complementarities, global games often have a unique, dominance solvable equilibrium, allowing analysis of a number of economic models of coordination failure. For symmetric binary action global games, equilibrium strategies in the limit (as noise becomes negligible) are simple to characterize in terms of ‘diffuse’ beliefs over the actions of others. We describe a number of economic applications that fall in this category. We also explore the distinctive roles of public and private information in this setting, review results for general global games, discuss the relationship between global games and a literature on higher order beliefs in game theory ∗This paper was prepared for the Eighth World Congress of the Econometric Society (Seattle 2000). Section 3 incorporates work circulated earlier under the title “Private versus Public Information in Coordination Problems.” We would like to thank Hans Carlsson, David Frankel, Josef Hofbauer, Jonathan Levin and Ady Pauzner for valuable comments on the paper, and Susan Athey for her insightful remarks as discussant at the Congress. Morris would like to record an important intellectual debt in this area to Atsushi Kajii, through joint research and long discussions. Morris is grateful for financial support from National Science Foundation grant #9709601. and describe the relationship to local interaction games and dynamic games with payoff shocks.