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Coordination cycles

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    0343725 - NHÚ 2011 RIV US eng J - Journal Article
    Steiner, Jakub
    Coordination cycles.
    Games and Economic Behavior. Roč. 63, č. 1 (2008), s. 308-327. ISSN 0899-8256
    Institutional research plan: CEZ:AV0Z70850503
    Keywords : global games * coordination * crises * cycles and fluctuations
    Subject RIV: AH - Economics
    Impact factor: 1.333, year: 2008

    Players repeatedly face a coordination problem in a dynamic global game. By choosing a risky action (invest) instead of waiting, players risk instantaneous losses as well as a loss of payoffs from future stages, in which they cannot participate if they go bankrupt. Thus, the total strategic risk associated with investment in a particular stage depends on the expected continuation payoff. High continuation payoff makes investment today more risky and therefore harder to coordinate on, which decreases today's payoff. Thus, expectation of successful coordination tomorrow undermines successful coordination today, which leads to fluctuations of equilibrium behavior even if the underlying economic fundamentals happen to be the same across the rounds. The dynamic game inherits the equilibrium uniqueness of the underlying static global game.
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