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Avoiding the Curse of Dimensionality in Dynamic Stochastic Games

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  • Ulrich Doraszelski
  • Kenneth L. Judd

Abstract

Continuous-time stochastic games with a finite number of states have substantial computational and conceptual advantages over the more common discrete-time model. In particular, continuous time avoids a curse of dimensionality and speeds up computations by orders of magnitude in games with more than a few state variables. The continuous-time approach opens the way to analyze more complex and realistic stochastic games than is feasible in discrete-time models.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0304.

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Date of creation: Jan 2005
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Handle: RePEc:nbr:nberte:0304

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  1. 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.
  2. David Besanko & Ulrich Doraszelski, 2002. "Capacity Dynamics and Endogenous Asymmetries in Firm Size," Computing in Economics and Finance 2002 196, Society for Computational Economics.
  3. Ariel Pakes & Paul McGuire, 1992. "Computing Markov perfect Nash equilibria: numerical implications of a dynamic differentiated product model," Discussion Paper / Institute for Empirical Macroeconomics 58, Federal Reserve Bank of Minneapolis.
  4. Fershtman, C. & Pakes, A., 1998. "A Dynamic Oligopoly with Collusion and Price Wars," Papers 26-98, Tel Aviv.
  5. Jonathan Levin (Stanford University) & Pat Bajari & Lanier Benkard, 2004. "Estimating Dynamic Models of Imperfect Competition," Econometric Society 2004 North American Winter Meetings 627, Econometric Society.
  6. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
  7. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  8. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711.
  9. Ulrich Doraszelski & Sarit Markovich, 2004. "Advertising Dynamics and Competitive Advantage," Computing in Economics and Finance 2004 61, Society for Computational Economics.
  10. Pakes, Ariel & McGuire, Paul, 2001. "Stochastic Algorithms, Symmetric Markov Perfect Equilibrium, and the 'Curse' of Dimensionality," Econometrica, Econometric Society, vol. 69(5), pages 1261-81, September.
  11. Ulrich Doraszelski & Sarit Markovich, 2004. "Advertising Dynamics and Competitive Advantage," Econometric Society 2004 North American Summer Meetings 162, Econometric Society.
  12. Patricia Langohr, 2003. "Competitive Convergence and Divergence: Capability and Position Dynamics," Computing in Economics and Finance 2003 229, Society for Computational Economics.
  13. Gowrisankaran, Gautam, 1999. "Efficient representation of state spaces for some dynamic models," Journal of Economic Dynamics and Control, Elsevier, vol. 23(8), pages 1077-1098, August.
  14. Ronald L. Goettler & Christine A. Parlour, 2004. "Equilibrium in a Dynamic Limit Order Market," 2004 Meeting Papers 757, Society for Economic Dynamics.
  15. Pesendorfer, Martin & Schmidt-Dengler, Philipp, 2003. "Identification and Estimation of Dynamic Games," CEPR Discussion Papers 3965, C.E.P.R. Discussion Papers.
  16. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 581-611, 07.
  17. Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329.
  18. Ariel Pakes, 2000. "A Framework for Applied Dynamic Analysis in I.O," NBER Working Papers 8024, National Bureau of Economic Research, Inc.
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Cited by:
  1. David Besanko & Ulrich Doraszelski & Yaroslav Kryukov & Mark Satterthwaite, 2007. "Learning-by-Doing, Organizational Forgetting, and Industry Dynamics," Levine's Bibliography 321307000000000903, UCLA Department of Economics.
  2. Pichler, Paul, 2011. "Solving the multi-country Real Business Cycle model using a monomial rule Galerkin method," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 240-251, February.

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