Rather, debt markets may be subject to multiple equilibria … In such an environment, shifts in financing costs can lead to a wide variation in the possible trajectories of debt-to-GDP ratios over time, which serves to exacerbate market anxiety.
More recently, a theory of "multiple equilibria" has gained support, in which there is more than one probable outcome, with market expectations usually the deciding factor.
Mr Maskin's breakthrough was "implementation theory", which clarifies when mechanisms can be designed that only produce equilibria that are incentive efficient.
In such cases, countries can easily find themselves pushed into bad equilibria with negative implications for the euro area as a whole.
In the long-run the two equilibria are toward a non-union economy or else toward the Nordic model where virtually everyone is in a union.
And the goal of policy is to keep the economy out of bad equilibria.
Such equilibria are part of a branch of maths called game theory a name both men and women might think eminently appropriate.
They are also a special case of Nash equilibria.
And the recursive nature of this process means that multiple equilibria are possible.
Economists prefer to talk of Nash equilibria and, since economics is founded on the idea of rational human choice, the implication is that people will adjust their behaviour (whether consciously or unconsciously is slightly ambiguous) in order to maximise their gains.
As is occasionally pointed out in the meetings, financial crises are multiple equilibria creatures; that is, if no one expects a crisis then solvent firms don't face liquidity problems and remain solvent, but if a crisis becomes expected they do and don't.
