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Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information, Second Version

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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 infinite 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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File URL: http://economics.sas.upenn.edu/system/files/working-papers/10-021.pdf
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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 10-021.

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Length: 48 pages
Date of creation: 08 Apr 2010
Date of revision: 30 Jun 2010
Handle: RePEc:pen:papers:10-021

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

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  1. Aradillas-Lopez, Andres, 2010. "Semiparametric estimation of a simultaneous game with incomplete information," Journal of Econometrics, Elsevier, vol. 157(2), pages 409-431, August.
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Cited by:
  1. Michèle Belot & Marco Francesconi, 2013. "Dating Preferences and Meeting Opportunities in Mate Choice Decisions," Journal of Human Resources, University of Wisconsin Press, vol. 48(2), pages 474-508.
  2. Nianqing Liu & Haiqing Xu, . "Semiparametric Analysis of Binary Games of Incomplete Information," Department of Economics Working Papers 130911, The University of Texas at Austin, Department of Economics, revised Nov 2012.

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