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To Manipulate or Not to Manipulate – A Short Comment on the Game of Interest Rate Manipulation

Published: 20 February 2013
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Abstract

In this paper, bankster reputation as a coordination mechanism (“focal arbitrator”) in the game of interest rate manipulation and the effects of punishment will be analyzed with the aid of game-theoretical instruments. In such a game with multiple equilibria, the “bad” to-manipulate equilibrium arises because of “bankster expectations”. Under this condition, the game can, in the short term, only be changed through penalties so that the not-to-manipulate strategy becomes the dominant one. Should it happen that the bankster reputation be destroyed in the long term, penalties would, once again, become superfluous, because the “good” not-to-manipulate equilibrium would appear even in self-interested actions, due to the good banker expectations.

Published in International Journal of Economics, Finance and Management Sciences (Volume 1, Issue 1)
DOI 10.11648/j.ijefm.20130101.13
Page(s) 21-24
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

LIBOR, Interest Rate Manipulation, Game Theory, Focal Point, Banksters

References
[1] Snider, Connan and Thomas Youle (2009), Diagnosing the LIBOR: Strategic Manipulation and Member Portfolio Positions, Working Paper (unpublished).
[2] Abrantes-Metz, Rosa M. et al. (2009), „Libor manipulation?", Journal of Banking & Finance 36 (1), 136–150.
[3] Ellis, David M. (2011), LIBOR Manipulation: A Brief Overview of the Debate, FTI UK London.
[4] Siedenbiedel, Christian (2013), "Die Libor-Bande", Frankfurter Allgemeine Sonntagszeitung, No. 21, 21-22.
[5] Maisch, Michael (2013), "Der Libor ist ein Auslaufmodell", Handelsblatt, No. 10, 26.
[6] Economist (2012), "Banksters", The Economist 404 (8792), 14.
[7] Holler, Manfred J. and Gerhard Illing (2006), Einführung in die Spieltheorie, 6th ed., Springer, Berlin et al.
[8] Myerson, Roger B. (1992), Game Theory: Analysis of Conflict, Harvard University Press, Cambridge and London.
[9] Schelling, Thomas C. (2010), "Game Theory: A Practitioner’s Approach", Economics and Philosophy 26 (1), 27-46.
[10] Popper, Karl R. (2006), "Wie ich die Philosophie sehe", in: Popper, K. R., Alle Menschen sind Philosophen, 6th ed., Piper Verlag, München, 11-22.
[11] Rubinstein, Ariel (1991), "Comments on the Interpretation of Game Theory", Econometrica 59 (4), 909-924.
[12] Haaker, Andreas (2012), Zur Manipulation von Referenzzinssätzen: Versuch einer einfachen spieltheoretischen Analyse des Grundproblems, Working Paper, Berlin (unpublished).
[13] Böll, Sven et al. (2012), "Das Kartell", Der Spiegel, No. 31, 64-70.
[14] Coase, Ronald H. (1960), "The Problem of Social Cost", Journal of Law and Economics 3 (Oct.), 1-44.
[15] Schelling, Thomas C. (1960 [1980]), The Strategy of Conflict, Harvard University Press, Cambridge and London.
[16] Myerson, Roger B. (2009), "Learning from Schelling’s Strategy of Conflict", Journal of Economic Literature 47 (4), 1109-1125.
[17] Kirchgässner, Gebhard (2008), Homo Oeconomicus, 3rd ed., Mohr Siebeck, Tübingen.
[18] Harsanyi, John C. and Reinhard Selten (1988 [1992]), A General Theory of Equilibrium Selection in Games, The MIT Press, Cambridge and London.
[19] Binmore, Ken (2007), Game Theory, Oxford University Press, New York.
[20] Dixit, Avinash K. and Barry J. Nalebuff, (2010), The Art of Strategy, W. W. Norton & Company, New York and London.
[21] Ludwig, Thomas (2012), "EU zeigt keine Toleranz für Zinsmanipulationen", Handelsblatt, No. 143, 27.
[22] Hurwicz, Leonid (2008), "But Who Will Guard the Guardians?", American Economic Review 98 (3), 577-585.
[23] Arnold, Volker (2009), "Vom Sollen zum Wollen – über neuere Entwicklungen in der Wirtschaftsordnung", Perspektiven der Wirtschaftspolitik 10 (3), 253-265.
[24] Maisch, Michael (2013), "Blick zurück im Zorn", Handelsblatt, No. 30, 27.
[25] The Wheatley Review (2012), The Wheatley Review of LIBOR: final report, September 2012.
Cite This Article
  • APA Style

    Andreas Haaker. (2013). To Manipulate or Not to Manipulate – A Short Comment on the Game of Interest Rate Manipulation. International Journal of Economics, Finance and Management Sciences, 1(1), 21-24. https://doi.org/10.11648/j.ijefm.20130101.13

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    ACS Style

    Andreas Haaker. To Manipulate or Not to Manipulate – A Short Comment on the Game of Interest Rate Manipulation. Int. J. Econ. Finance Manag. Sci. 2013, 1(1), 21-24. doi: 10.11648/j.ijefm.20130101.13

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    AMA Style

    Andreas Haaker. To Manipulate or Not to Manipulate – A Short Comment on the Game of Interest Rate Manipulation. Int J Econ Finance Manag Sci. 2013;1(1):21-24. doi: 10.11648/j.ijefm.20130101.13

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  • @article{10.11648/j.ijefm.20130101.13,
      author = {Andreas Haaker},
      title = {To Manipulate or Not to Manipulate – A Short Comment on the Game of Interest Rate Manipulation},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {1},
      number = {1},
      pages = {21-24},
      doi = {10.11648/j.ijefm.20130101.13},
      url = {https://doi.org/10.11648/j.ijefm.20130101.13},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20130101.13},
      abstract = {In this paper, bankster reputation as a coordination mechanism (“focal arbitrator”) in the game of interest rate manipulation and the effects of punishment will be analyzed with the aid of game-theoretical instruments. In such a game with multiple equilibria, the “bad” to-manipulate equilibrium arises because of “bankster expectations”. Under this condition, the game can, in the short term, only be changed through penalties so that the not-to-manipulate strategy becomes the dominant one. Should it happen that the bankster reputation be destroyed in the long term, penalties would, once again, become superfluous, because the “good” not-to-manipulate equilibrium would appear even in self-interested actions, due to the good banker expectations.},
     year = {2013}
    }
    

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    AB  - In this paper, bankster reputation as a coordination mechanism (“focal arbitrator”) in the game of interest rate manipulation and the effects of punishment will be analyzed with the aid of game-theoretical instruments. In such a game with multiple equilibria, the “bad” to-manipulate equilibrium arises because of “bankster expectations”. Under this condition, the game can, in the short term, only be changed through penalties so that the not-to-manipulate strategy becomes the dominant one. Should it happen that the bankster reputation be destroyed in the long term, penalties would, once again, become superfluous, because the “good” not-to-manipulate equilibrium would appear even in self-interested actions, due to the good banker expectations.
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Author Information
  • Division of Fundamental Accounting Issues, DGRV – the German Cooperative and Raiffeisen Confederation Association, Berlin

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