**1. Introduction**

Economic experiments are becoming increasingly popular as an innovative tool to introduce economic issues. Basically, they are used to test theoretical predictions derived from the game theory. In this paper, we give a special focus to the coordination games under heterogeneous information (public versus private) as sparked in the influential paper by Morris and Shin [1]. Such a category of games is considered as a "structure of economic decision problems" in the words of Heinemann et al. [2]. More precisely, speculative attacks on a currency peg can be modeled as a coordination game. With respect to the theoretical framework of Morris and Shin [1], central bank transparency stands for the precision of public information, but transparency, in general, includes also the precision of private information. Receiving different

information in nature has consequences on agents' beliefs, which, in turn, impact the likelihood of a speculative attack occurrence: (see Trabelsi [3] for an econometric analysis). According to Morris and Shin [1], increasing the precision of public information is not always good, and generally leads to ambiguous effects on social welfare.<sup>1</sup>

Two main experiments that explore the use of private (specific to each agent) versus public information (observed by all) are by Heinemann et al. [2] and Cornand [5] who extends the analysis of the former to allow for signals of different nature. Szkup and Tervino [6] resume the experimental design of Heinemann et al. [2], but more precise private information is made available to agents at a certain cost. Costain et al. [7] conduct an experiment with a sequential move while previous actions are observed. They show that there is a specific region where the event of "all players attack" or "no play attacks" happens with a probability of more than 1%. Experiments on speculative attacks generalize the static setting to a dynamic one. For example, Cheung and Friedman [8] propose an entry game in continuous time. At each point in time, each player chooses to attack or not. The attack is made at a certain cost, which is cumulative as long as the player has attack status. Fehr et al. [9] make an important observation of sunspot equilibria when analyzing a coordination game of agents deciding between different assets and receiving noisy signals about them. Battiston and Harrison [10] suggest a novel approach that makes information about other players' behavior observable through a connected network. They find that information about sunspots improves coordination, while information about other players' behavior hampers it. Other works (See for instance Trabelsi and Hichri [11]) provide an experiment in a closer context by testing treatment of fragmented information (a common information per sub-group of agents) against a treatment of partial publicity (public information observed by a fraction of agents) that was introduced by Cornand and Heinemann [12]. Other experiments that apply coordination games can be found in Trautmann and Vlahu [13] to study strategic loan default. More recent studies complement this setting by analyzing information transmission in networks [14, 15].

Although the protocol is close to Cornand [5] – which has also been already inspired by the experimental design of Heinemann et al. [2] three main differences (while the other parameters are kept the same) between our protocol and theirs are detected:


Usually, economic experiments are computerized. The advantage of using fewer numbers of subjects allows us to perform the experiment by paper and pencil. Each player writes his or her own contribution on a sheet of paper. Interpreting the results with caution is, thus, appealing since the coordination games are sensitive to variation in the subjects' pool. Except the monetary incentive, all the conditions of implementing a standard laboratory experiment are respected. The experiment is run on students who do not know the context or the purpose previously.

<sup>1</sup> For a succinct review of literature on the subject, we refer readers to Allegret and Cornand [4].

*Central Bank Transparency and Speculative Attacks: An Overview and Insights from… DOI: http://dx.doi.org/10.5772/intechopen.107247*

The fact that earnings (expressed in the **E**xperimental **C**urrency **U**nit) are not really paid is explained to the participants in advance. But to maintain interest, we passed out forms on which students can keep track of their hypothetical earnings [16]. Our experiment turns up an interesting attempt by applying the argument of Read [17] on the non-necessity of monetary payments in experimental economics. On p. 266, he asserts the following: "*My view is that monetary incentives are not an experimental magic bullet. They are one part of the experimentalist's arsenal [..]*". Read [17] concludes further that "*[ … ] there is no basis for requiring the use of real incentives to do experimental economics*". He departs from the fact that people have powerful intrinsic stimulations to do their best and money decreases their cognitive exertion. According to the same author, the use or not of monetary payments is akin to whether the objective of the experimenter is to arouse extrinsic or intrinsic motives of the players. In our case, we choose to make subjects rely on their intrinsic motives to play the game.

The rest of the paper is structured as follows; Section 2 describes the theoretical framework on which the experiment is based and Section 3 presents the experimental protocol. We discuss the main results in Section 4. We provide post-experiment discussion in Section 5 and Section 6 concludes.
