Strategic Ambiguity in Global Games
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.
Consider an incomplete information game with players who have ambiguous beliefs about a payoff-relevant state. Players receive signals about a state, but they do not exactly know the true joint distribution of signals and a state. In this game, players’ beliefs about the opponents’ actions are also ambiguous even if players know the opponents’ strategies, which assign an action to each signal, because their beliefs about the opponents’ signals are ambiguous. Thus, rational behavior depends not only on fundamental ambiguity (ambiguity about states) but also on strategic ambiguity (ambiguity about others’ actions).