Finite State Dynamic Games with Asymmetric Information: A Computational Framework
AbstractThis paper develops a relatively simple method for computing the Markov Perfect Equilibria of dynamic games with asymmetric information (see Maskin and Tirole (1992, 2001)). We consider a class of dynamic games in which there is finite number of active players in each period, each characterized by a vector of state variables. Some of these state variables are publicly observable while others are private information. In each period players' strategies consist of a set of continuous control and a set of discrete controls. Players' payoff at each period depend on the players characteristics at that period and their choice of controls. We focus however only on finite state dynamic games such that the sets of possible characteristics are finite. We use a reinforcement learning algorithm, similar to Pakes and McGuire (2001) for the complete information games. To illustrate our algorithm we use it to compute a MPE of an oligopolistic industry organized as a legal cartel firms knows their own costs but do not observe the random outcomes of the investment processes of their competitors.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 41.
Date of creation: 2004
Date of revision:
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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Dynamic Games; Numerical Analysis; Asymmetric Information.;
Other versions of this item:
- Chaim Fershtman & Ariel Pakes, 2004. "Finite State Dynamic Games with Asymmetric Information: A Computational Framework," Harvard Institute of Economic Research Working Papers 2041, Harvard - Institute of Economic Research.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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- Susan Athey & Kyle Bagwell, 2004.
"Collusion with persistent cost shocks,"
Discussion Papers, Columbia University, Department of Economics
0405-07, Columbia University, Department of Economics.
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