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Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information

Author

Listed:
  • Aureo de Paula

    (Department of Economics, University of Pennsylvania)

  • Xun Tang

    (Department of Economics, University of Pennsylvania)

Abstract

This paper studies the inference of interaction effects, i.e., the impacts of players' actions on each other's payoffs, in discrete simultaneous games with incomplete information. We propose an easily implementable test for the signs of state-dependent interaction effects that does not require parametric specifications of players' payoffs, the distributions of their private signals or the equilibrium selection mechanism. The test relies on the commonly invoked assumption that players' private signals are independent conditional on observed states. The procedure is valid in the presence of multiple equilibria, and, as a by-product of our approach, we propose a formal test for multiple equilibria in the data-generating process. We provide Monte Carlo evidence of the test's good performance in finite samples. We also implement the test to infer the direction of interaction effects in couples' joint retirement decisions using data from the Health and Retirement Study.

Suggested Citation

  • Aureo de Paula & Xun Tang, 2010. "Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information," PIER Working Paper Archive 10-010, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  • Handle: RePEc:pen:papers:10-010
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    References listed on IDEAS

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    1. Joseph P. Romano & Michael Wolf, 2005. "Stepwise Multiple Testing as Formalized Data Snooping," Econometrica, Econometric Society, vol. 73(4), pages 1237-1282, July.
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    5. Mark van der Laan & Sandrine Dudoit & Katherine Pollard, 2004. "Multiple Testing. Part II. Step-Down Procedures for Control of the Family-Wise Error Rate," U.C. Berkeley Division of Biostatistics Working Paper Series 1138, Berkeley Electronic Press.
    6. Aradillas-Lopez, Andres, 2010. "Semiparametric estimation of a simultaneous game with incomplete information," Journal of Econometrics, Elsevier, vol. 157(2), pages 409-431, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    identification; inference; multiple equilibria; incomplete information games;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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