Coordination in Global Games with Heterogeneous Agents

This paper studies equilibrium selection in large coordination games played by heterogeneous agents, such as models of bank runs, currency attacks or technology adoption. Player payoffs are affected by the average action and the player's type, as well as a global parameter reflecting economic fundamentals. I introduce the notion of ex ante risk dominance and show that it coincides with the global games selection in games with payoffs that are separable in average action and type. Ex ante risk dominance provides an economic interpretation behind the global games selection in terms of maximizing ex ante expected payoffs under pessimistic beliefs. I characterize the ex ante risk dominant equilibrium, pinning down the presence of tipping points in terms of economic fundamentals. I also show that payoff separability is needed for the global games selection to be uniform, that is, to be robust to changes in the distribution of signal noise.