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A Genetic Algorithm for the Structural Estimation of Games with Multiple Equilibria

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Author Info

  • VICTOR AGUIRREGABIRIA

    ()
    (Department of Economics, Boston University)

  • PEDRO MIRA

    ()
    (Centro de Estudios Monetarios y Financieros (CEMFI))

Abstract

This paper proposes an algorithm to obtain maximum likelihood estimates of structural parameters in discrete games with multiple equilibria. The method combines a genetic algorithm (GA) with a pseudo maximum likelihood (PML) procedure. The GA searches efficiently over the huge space of possible combinations of equilibria in the data. The PML procedure avoids the repeated computation of equilibria for each trial value of the parameters of interest. To test the ability of this method to get maximum likelihood estimates, we present a Monte Carlo experiment in the context of a game of price competition and collusion.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-001.

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Length: 48 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-001

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Keywords: Empirical games; Maximum likelihood estimation; Multiple equilibria; Genetic algorithms;

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References

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  1. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc.
  2. Victor Aguirregabiria & Pedro Mira, 2004. "Sequential Estimation Of Dynamic Discrete Games," Working Papers wp2004_0413, CEMFI.
  3. Victor Aguirregabiria & Pedro Mira, 2002. "Swapping the Nested Fixed Point Algorithm: A Class of Estimators for Discrete Markov Decision Models," Econometrica, Econometric Society, vol. 70(4), pages 1519-1543, July.
  4. V. Joseph Hotz & Robert A. Miller & Seth Sanders & Jeffrey Smith, 1992. "A Simulation Estimator for Dynamic Models of Discrete Choice," Working Papers 9205, Harris School of Public Policy Studies, University of Chicago.
  5. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
  6. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, 09.
  7. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples)," NBER Working Papers 10506, National Bureau of Economic Research, Inc.
  8. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 147-165, January.
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Cited by:
  1. Sumon Datta & K. Sudhir, 2012. "Does Reducing Spatial Differentiation Increase Product Differentiation? Effects of Zoning on Retail Entry and Format Variety," Cowles Foundation Discussion Papers 1851, Cowles Foundation for Research in Economics, Yale University, revised Sep 2012.
  2. Viauroux, Christelle, 2007. "Structural estimation of congestion costs," European Economic Review, Elsevier, vol. 51(1), pages 1-25, January.

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