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Robust Predictions in Games With Incomplete Information

  • Dirk Bergemann
  • Stephen Morris

We analyze games of incomplete information and offer equilibrium predictions which are valid for, and in this sense robust to, all possible private information structures that the agents may have. We completely characterize the set of Bayes correlated equilibria in a class of games with quadratic payoffs and normally distributed uncertainty in terms of restrictions on the first and second moments of the equilibrium action-state distribution. We derive exact bounds on how prior knowledge about the private information refines the set of equilibrium predictions. We consider information sharing among firms under demand uncertainty and find newly optimal information policies via the Bayes correlated equilibria. Finally, we reverse the perspective and investigate the identification problem under concerns for robustness to private information. The presence of private information leads to set rather than point identification of the structural parameters of the game.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 81 (2013)
Issue (Month): 4 (07)
Pages: 1251-1308

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Handle: RePEc:ecm:emetrp:v:81:y:2013:i:4:p:1251-1308
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