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Estimating Static Models of Strategic Interaction

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  • Patrick Bajari
  • Han Hong
  • John Krainer
  • Denis Nekipelov

Abstract

We propose a method for estimating static games of incomplete information. A static game is a generalization of a discrete choice model, such as a multinomial logit or probit, which allows the actions of a group of agents to be interdependent. Unlike most earlier work, the method we propose is semiparametric and does not require the covariates to lie in a discrete set. While the estimator we propose is quite flexible, we demonstrate that in most cases it can be easily implemented using standard statistical packages such as STATA. We also propose an algorithm for simulating the model which finds all equilibria to the game. As an application of our estimator, we study recommendations for high technology stocks between 1998-2003. We find that strategic motives, typically ignored in the empirical literature, appear to be an important consideration in the recommendations submitted by equity analysts.

Suggested Citation

  • Patrick Bajari & Han Hong & John Krainer & Denis Nekipelov, 2006. "Estimating Static Models of Strategic Interaction," NBER Working Papers 12013, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12013
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    JEL classification:

    • L0 - Industrial Organization - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General

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