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Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information

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  • Aureo de Paula

    ()
    (Department of Economics, University of Pennsylvania)

  • Xun Tang

    ()
    (Department of Economics, University of Pennsylvania)

Abstract

This paper studies the inference of interaction effects, i.e., the impacts of players' actions on each other's payoffs, in discrete simultaneous games with incomplete information. We propose an easily implementable test for the signs of state-dependent interaction effects that does not require parametric specifications of players' payoffs, the distributions of their private signals or the equilibrium selection mechanism. The test relies on the commonly invoked assumption that players' private signals are independent conditional on observed states. The procedure is valid in the presence of multiple equilibria, and, as a by-product of our approach, we propose a formal test for multiple equilibria in the data-generating process. We provide Monte Carlo evidence of the test's good performance in finite samples. We also implement the test to infer the direction of interaction effects in couples' joint retirement decisions using data from the Health and Retirement Study.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-010.

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Length: 44 pages
Date of creation: 01 Apr 2010
Date of revision:
Handle: RePEc:pen:papers:10-010

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Keywords: identification; inference; multiple equilibria; incomplete information games;

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References

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  1. Aradillas-Lopez, Andres, 2010. "Semiparametric estimation of a simultaneous game with incomplete information," Journal of Econometrics, Elsevier, Elsevier, vol. 157(2), pages 409-431, August.
  2. repec:bla:restud:v:77:y:2010:i:3:p:1138-1163 is not listed on IDEAS
  3. Bo E. Honor & �ureo De Paula, 2010. "Interdependent Durations," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1138-1163.
  4. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(3), pages 595-629, July.
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Citations

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Cited by:
  1. Dirk Bergemann & Stephen Morris, 2011. "Robust Predictions in Games with Incomplete Information," Cowles Foundation Discussion Papers 1821RR, Cowles Foundation for Research in Economics, Yale University, revised Oct 2012.
  2. Navarro, Salvador & Takahashi, Yuya, 2012. "A Semiparametric Test of Agent's Information Sets for Games of Incomplete Information," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 432, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Otsu, Taisuke & Pesendorfer, Martin & Takahashi, Yuya, 2013. "Testing for Equilibrium Multiplicity in Dynamic Markov Games," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 423, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  4. Victor Aguirregabiria & Pedro Mira, 2013. "Identification of Games of Incomplete Information with Multiple Equilibria and Common Unobserved Heterogeneity," Working Papers tecipa-474, University of Toronto, Department of Economics.
  5. Fabian Dunker & Stefan Hoderlein & Hiroaki Kaido, 2013. "Random Coefficients in Static Games of Complete Information," Boston College Working Papers in Economics 835, Boston College Department of Economics.
  6. Jeremy Fox & Natalia Lazzati, 2013. "Identification of discrete choice models for bundles and binary games," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP04/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  7. Yuanyuan Wan & Haiqing Xu, 2010. "Semiparametric identification and estimation of binary discrete games of incomplete information with correlated private signals," Department of Economics Working Papers 130913, The University of Texas at Austin, Department of Economics.
  8. Andres Aradillas-Lopez & Adam Rosen, 2013. "Inference in ordered response games with complete information," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP33/13, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. �ureo de Paula, 2013. "Econometric Analysis of Games with Multiple Equilibria," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 5(1), pages 107-131, 05.
  10. Aguirregabiria, Victor & Nevo, Aviv, 2010. "Recent developments in empirical IO: dynamic demand and dynamic games," MPRA Paper 27814, University Library of Munich, Germany.
  11. Arthur Lewbel & Xun Tang, 2010. "Identification and Estimation of Games with Incomplete Information Using Excluded Regressors, Second Version," PIER Working Paper Archive 12-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 20 Mar 2012.
  12. Nianqing Liu & Quang Vuong & Haiqing Xu, 2012. "Rationalization and Identification of Discrete Games with Correlated Types," Department of Economics Working Papers 130915, The University of Texas at Austin, Department of Economics.
  13. Haiqing Xu, . "Estimation of Discrete Games with Correlated Types," Department of Economics Working Papers 130909, The University of Texas at Austin, Department of Economics.

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