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Strategic Ambiguity in Global Games

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  • Takashi Ui

    (Hitotsubashi University)

Abstract

In incomplete information games with ambiguous information, rational behavior depends on fundamental ambiguity (ambiguity about states) and strategic ambiguity (ambiguity about others’ actions). We study the impact of strategic ambiguity in global games, which is evident when one of the actions yields a constant payoff. Ambiguous-quality information makes more players choose this action, whereas (unambiguous) low-quality information makes more players choose an ex-ante best response to the uniform belief over the opponents’ actions. If the ex-ante best-response action yields a constant payoff, sufficiently ambiguous-quality information makes most players choose this action, thus inducing a unique equilibrium, whereas sufficiently low-quality information generates multiple equilibria. In applications to financial crises, we demonstrate that news of more ambiguous quality triggers a debt rollover crisis, whereas news of less ambiguous quality triggers a currency crisis.

Suggested Citation

  • Takashi Ui, 2021. "Strategic Ambiguity in Global Games," Working Papers on Central Bank Communication 032, University of Tokyo, Graduate School of Economics.
    • Handle: RePEc:upd:utmpwp:032
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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