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Avoiding the Curse of Dimensionality in Dynamic Stochastic Games

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  • Ulrich Doraszelski
  • Kenneth L. Judd

Abstract

Continuous-time stochastic games with a finite number of states have substantial computational and conceptual advantages over the more common discrete-time model. In particular, continuous time avoids a curse of dimensionality and speeds up computations by orders of magnitude in games with more than a few state variables. The continuous-time approach opens the way to analyze more complex and realistic stochastic games than is feasible in discrete-time models.

Suggested Citation

  • Ulrich Doraszelski & Kenneth L. Judd, 2005. "Avoiding the Curse of Dimensionality in Dynamic Stochastic Games," NBER Technical Working Papers 0304, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberte:0304
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    References listed on IDEAS

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    1. Doraszelski, Ulrich & Pakes, Ariel, 2007. "A Framework for Applied Dynamic Analysis in IO," Handbook of Industrial Organization, Elsevier.
    2. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, September.
    3. Kenneth L. Judd, 1998. "Numerical Methods in Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262100711, January.
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    7. Ulrich Doraszelski & Sarit Markovich, 2004. "Advertising Dynamics and Competitive Advantage," Econometric Society 2004 North American Summer Meetings 162, Econometric Society.
    8. Patricia Langohr, 2003. "Competitive Convergence and Divergence: Capability and Position Dynamics," Computing in Economics and Finance 2003 229, Society for Computational Economics.
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    11. Martin Pesendorfer & Philipp Schmidt-Dengler, 2003. "Identification and Estimation of Dynamic Games," NBER Working Papers 9726, National Bureau of Economic Research, Inc.
    12. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, June.
    13. C. Lanier Benkard, 2004. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 581-611.
    14. Ulrich Doraszelski & Mark Satterthwaite, 2003. "Foundations of Markov-Perfect Industry Dynamics. Existence, Purification, and Multiplicity," Discussion Papers 1383, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Caplin, Andrew & Nalebuff, Barry, 1991. "Aggregation and Imperfect Competition: On the Existence of Equilibrium," Econometrica, Econometric Society, vol. 59(1), pages 25-59, January.
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    Citations

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    Cited by:

    1. Richard Lowery & Tim Landvoigt, 2016. "Financial Industry Dynamics," 2016 Meeting Papers 1248, Society for Economic Dynamics.
    2. C. Lanier Benkard & Przemyslaw Jeziorski & Gabriel Y. Weintraub, 2013. "Oblivious Equilibrium for Concentrated Industries," NBER Working Papers 19307, National Bureau of Economic Research, Inc.
    3. Galo Nuño & Carlos Thomas, 2015. "Monetary policy and sovereign debt vulnerability," Working Papers 1517, Banco de España;Working Papers Homepage.
    4. Juan Carlos Parra-Alvarez, 2013. "A comparison of numerical methods for the solution of continuous-time DSGE models," CREATES Research Papers 2013-39, Department of Economics and Business Economics, Aarhus University.
    5. David Besanko & Ulrich Doraszelski, 2005. "Learning-by-Doing, Organizational Forgetting, and Industry Dynanmics," Computing in Economics and Finance 2005 236, Society for Computational Economics.
    6. C. Lanier Benkard & Przemyslaw Jeziorski & Gabriel Y. Weintraub, 2015. "Oblivious equilibrium for concentrated industries," RAND Journal of Economics, RAND Corporation, vol. 46(4), pages 671-708, October.
    7. Cai,Yongyang & Selod,Harris & Steinbuks,Jevgenijs, 2015. "Urbanization and property rights," Policy Research Working Paper Series 7486, The World Bank.
    8. Peter Arcidiacono & Patrick Bayer & Jason R. Blevins & Paul B. Ellickson, 2016. "Estimation of Dynamic Discrete Choice Models in Continuous Time with an Application to Retail Competition," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 889-931.
    9. Hong, Han & Li, Weiming & Wang, Boyu, 2015. "Estimation of dynamic discrete models from time aggregated data," Journal of Econometrics, Elsevier, vol. 188(2), pages 435-446.
    10. Pichler, Paul, 2011. "Solving the multi-country Real Business Cycle model using a monomial rule Galerkin method," Journal of Economic Dynamics and Control, Elsevier, vol. 35(2), pages 240-251, February.
    11. repec:spr:dyngam:v:7:y:2017:i:4:d:10.1007_s13235-017-0222-x is not listed on IDEAS

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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