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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 (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 (but does not rely on) the presence of multiple equilibria in the data-generating process (DGP). As a by-product, we propose a formal test for multiple equilibria in the DGP. We also show how to extend our arguments to identify signs of interaction effects when private signals are correlated. We provide Monte Carlo evidence of the test's good performance in finite samples. We then implement the test using data on radio programming of commercial breaks in the U.S., and infer stations' incentives to synchronize their commercial breaks. Our results support the earlier finding by Sweeting (2009) that stations have stronger incentives.

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File URL: http://economics.sas.upenn.edu/system/files/working-papers/11-003.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 11-003.

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Length: 52 pages
Date of creation: 29 Jun 2010
Date of revision: 12 Feb 2011
Handle: RePEc:pen:papers:11-003

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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. Marco Francesconi & Mich�le Belot, 2011. "Dating Preferences and Meeting Opportunities in Mate Choice Decisions," Economics Discussion Papers 702, University of Essex, Department of Economics.
  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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