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Belief-Free Rationalizability and Informational Robustness

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Abstract

We study a linear interaction model with asymmetric information. We first characterize the linear Bayes Nash equilibrium for a class of one dimensional signals. It is then shown that this class of one dimensional signals provide a comprehensive description of the first and second moments of the distribution of outcomes for any Bayes Nash equilibrium and any information structure. We use our results in a variety of applications: (i) we study the connections between incomplete information and strategic interaction, (ii) we explain to what extent payoff environment and information structure of a economy are distinguishable through the equilibrium outcomes of the economy, and (iii) we analyze how equilibrium outcomes can be decomposed to understand the sources of individual and aggregate volatility.

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  • Dirk Bergemann & Tibor Heumann & Stephen Morris, 2017. "Belief-Free Rationalizability and Informational Robustness," Cowles Foundation Discussion Papers 2088, Cowles Foundation for Research in Economics, Yale University.
  • Handle: RePEc:cwl:cwldpp:2088
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    Cited by:

    1. Takashi Ui & Stephen Morris, 2020. "Incomplete Information Robustness," Working Papers on Central Bank Communication 019, University of Tokyo, Graduate School of Economics.
    2. George-Marios Angeletos & Karthik A. Sastry, 2018. "Managing Expectations: Instruments vs. Targets," NBER Working Papers 25404, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Networks; 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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