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Right arrow C71 - Cooperative Games
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Oxf Rev Econ Policy 2002; 18:462-478
© 2002 Oxford University Press and Oxford Review of Economic Policy Ltd

Article

Exchange-rate Attack as a Coordination Game: Theory and Experimental Evidence

Frank Heinemann
Ludwig-Maximilians-Universität München

Abstract

This paper compares theoretical predictions for a coordination game, used to explain the onset of a currency crisis, with observations from laboratory experiments. Theories that assume full rationality suggest that public information may destabilize an economy by creating self-fulfilling belief equilibria, while private information leads to a unique equilibrium. In experiments, differences in behaviour for these two kinds of information are small. Public information increases efficiency and coordination among players, and there is no evidence for destabilizing effects owing to self-fulfilling beliefs.


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