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

This paper compares theoretical predictions for a coordinationgame, used to explain the onset of a currency crisis, with observationsfrom laboratory experiments. Theories that assume full rationalitysuggest that public information may destabilize an economy bycreating self-fulfilling belief equilibria, while private informationleads to a unique equilibrium. In experiments, differences inbehaviour for these two kinds of information are small. Publicinformation increases efficiency and coordination among players,and there is no evidence for destabilizing effects owing toself-fulfilling beliefs.