Ambiguity and perceived coordination in a global game

- Ambiguity is introduced in a simple 2×2 global game.
- Larger ambiguity is shown to reduce the amount of coordination each player perceives.
- This is a new channel of the effect of ambiguity in global games.
- Small uncertainty with ambiguity tends to select the Pareto dominated equilibrium.
- Implications for global game models of financial crises are drawn.

In a global game, larger ambiguity is shown to decrease the amount of coordination each player perceives. Consequently, small uncertainty tends to select the Pareto dominated equilibrium of the game without uncertainty. Implications for models of financial crises are drawn.