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

  • Áureo de Paula
  • Xun Tang

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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File URL: http://hdl.handle.net/10.3982/ECTA9216
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 80 (2012)
Issue (Month): 1 (01)
Pages: 143-172

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Handle: RePEc:ecm:emetrp:v:80:y:2012:i:1:p:143-172
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  1. Bo E. Honor & �ureo De Paula, 2010. "Interdependent Durations," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1138-1163.
  2. repec:bla:restud:v:77:y:2010:i:3:p:1138-1163 is not listed on IDEAS
  3. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
  4. 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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