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06.06. Micro Theory Seminar: Stephen Morris

Micro Theory Seminar with Stephen Morris (Princeton University) - Please note the different location!

Event details
What
  • Micro Theory Seminar
When Jun 06, 2018
from 16:30 to 17:45
Where faculty room
Contact Name Stephan Lauermann
Contact Email
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Topic

Crises: Equilibrium Shifts and Large Shocks

 

Abstract

A coordination game with incomplete information is played through time. In each period, payoffs depend on a fundamental state and an additional idiosyncratic shock. Fundamentals evolve according to a random walk where the changes in fundamentals (namely common shocks) have a fat tailed distribution. We show that majority play shifts either if fundamentals reach a critical threshold or if there are large common shocks, even before the threshold is reached. The fat tails assumption matters because it implies that large shocks make players more unsure about whether their payoffs are higher than others. This feature is necessary for large shocks to matter.

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