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A global game is a situation where operatives are working on a large scale and making decisions that influence one another without knowing the full effects of those actions beforehand. The global game is a subset of game theory and, therefore, exists mostly as statistical models, social tendencies and predictive algorithms. In general, global game theory is used to predict economic crises, such as bank runs or bubbles. Along with predictive models, these theories contain methods for bringing said situations back to a state of reasonable stability.
Game theory is a very advanced method of creating statistical models. In these games, a situation is presented where one player’s actions have an influence on the success or failure of one or more other players. The actions and their consequences are mapped out statistically so the full effect of one action can be followed through other people to its completion. Using these models allows researchers to find the true cost of actions, even ones that appear innocuous, over a large system.
While there are a huge number of game types, most are defined by the amount of knowledge possessed by the various participants. The global game is an incomplete knowledge format. In this case, the information known by the various participants does not extend to the other players. A participant may know the full ramifications of his own actions, but he does not know the ramifications of the other players. In fact, he may not be aware of the other players’ choices or even their existence.
The usage of global game theory is mostly confined to financial crises. The models made by these experiments can predict the likelihood of a company, industry or even a country having a sudden dip in output or a financial crash. By using these models, investors can help prevent, or capitalize, on instabilities before they happen. This will protect investments or allow manipulators to cash in on the disruptions.
A common example of global game theory is in predicting bank runs. A bank run is when a group of people become fearful of a bank’s ability to pay back deposited money. When these people attempt to pull out of the bank, it generates fear among other members, and they start to withdraw their money. This panic spreads until the bank crashes under the weight of the withdrawals. The important thing to note is that the bank may not have been in trouble beforehand — it was the actions of the people panicking that caused the crash.