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Information, Interdependence, and Interaction: Where Does the Volatility Come From"

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Abstract

We analyze a class of games with interdependent values and linear best responses. The payoff uncertainty is described by a multivariate normal distribution that includes the pure common and pure private value environment as special cases. We characterize the set of joint distributions over actions and states that can arise as Bayes Nash equilibrium distributions under any multivariate normally distributed signals about the payoff states. We characterize maximum aggregate volatility for a given distribution of the payoff states. We show that the maximal aggregate volatility is attained in a noise-free equilibrium in which the agents confound idiosyncratic and common components of the payoff state, and display excess response to the common component. We use a general approach to identify the critical information structures for the Bayes Nash equilibrium via the notion of Bayes correlated equilibrium, as introduced by Bergemann and Morris (2013b).

Suggested Citation

  • Dirk Bergemann & Tibor Heumann & Stephen Morris, 2013. "Information, Interdependence, and Interaction: Where Does the Volatility Come From"," Cowles Foundation Discussion Papers 1928, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1928
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d19/d1928.pdf
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    Cited by:

    1. Jess Benhabib & Pengfei Wang & Yi Wen, 2017. "Uncertainty and Sentiment-Driven Equilibria," Studies in Economic Theory, in: Kazuo Nishimura & Alain Venditti & Nicholas C. Yannelis (ed.), Sunspots and Non-Linear Dynamics, chapter 0, pages 281-304, Springer.
    2. Taneva, Ina A, 2015. "Information Design," SIRE Discussion Papers 2015-50, Scottish Institute for Research in Economics (SIRE).
    3. Taneva, Ina A, 2015. "Information Design," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-50, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Ina Taneva, 2019. "Information Design," American Economic Journal: Microeconomics, American Economic Association, vol. 11(4), pages 151-185, November.

    More about this item

    Keywords

    Incomplete information; Bayes correlated equilibrium; Volatility; moments restrictions; Linear best responses; Quadratic payoffs;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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