Information, Interdependence, and Interaction: Where Does the Volatility Come from?
AbstractWe analyze a class of games with interdependent values and linear best responses. The payoff uncertainty is described by a multivariate normal distribution that includes the pure common and pure private value environment as special cases. We characterize the set of joint distributions over actions and states that can arise as Bayes Nash equilibrium distributions under any multivariate normally distributed signals about the payoff states. We characterize maximum aggregate volatility for a given distribution of the payoff states. We show that the maximal aggregate volatility is attained in a noise-free equilibrium in which the agents confound idiosyncratic and common components of the payoff state, and display excess response to the common component. We use a general approach to identify the critical information structures for the Bayes Nash equilibrium via the notion of Bayes correlated equilibrium, as introduced by Bergemann and Morris (2013b).
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Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000892.
Date of creation: 24 Feb 2014
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- Dirk Bergemann & Tibor Heumann & Stephen Morris, 2013. "Information, Interdependence, and Interaction: Where Does the Volatility Come From?," Cowles Foundation Discussion Papers 1928, Cowles Foundation for Research in Economics, Yale University.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
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- Jess Benhabib & Pengfei Wang & Yi Wen, 2013.
"Uncertainty and sentiment-driven equilibria,"
2013-011, Federal Reserve Bank of St. Louis.
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