Global game methods have found applications in many economic problems, allowing the identification of a unique outcome in contexts that have traditionally given rise to multiple equilibria. However, the growing popularity of global games has also highlighted the questionable nature of the informational underpinnings of the approach, in particular the assumption that players observe fundamental parameters with some noise. The literal interpretation of the noisy information structure raises methodological questions on the nature of private information and relative precision of public and private information.
The research on the common belief foundations of global games evaluates the robustness of the global games approach by mapping the familiar categories of global games to a general analysis of how coordination outcomes depend on all possible beliefs and higher order beliefs that players might have. In many instances, the uniqueness outcome associated with global games derives from "common knowledge of typicalness" - i.e., players at various states believe they are "typical" and this proposition is common knowledge among the players. The noisy information structure is merely a convenient device for bringing about such a state of affairs, and the general scope of the approach may be considerably more general than the particular formalism of noisy signals. Global games rest on firmer foundations than is often supposed, with implications for the use of this method in many applied contexts.
The research on the common belief foundations offers a new perspective on a popular tool used by economists - a perspective that has the potential to provide firm conceptual foundations based on basic principles. In so doing, the research will clarify debates on the use of global games by distinguishing the fundamental principles underpinning the approach from the incidental features of existing formalism. The new perspective will also offer alternative formalisms.
Broader Impact. Global games have been used extensively in applied problems in economics - in financial economics, political economy, and macroeconomics. They are also figuring increasingly in empirical analysis of coordination problems in economics and finance. The cogency of the applied work rests on the intellectual coherence of the methods used. The research on the common belief foundations of global games will allow informed debate on the proper analysis of important real world problems.
