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

  • Xun Tang

    (University of Pennsylvania)

  • Aureo de Paula

    (University of Pennsylvania)

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 which 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 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 it to infer the direction of interaction effects in couples' joint retirement decisions using data from the Health and Retirement Study.

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File URL: https://www.economicdynamics.org/meetpapers/2010/paper_1087.pdf
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Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1087.

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Date of creation: 2010
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Handle: RePEc:red:sed010:1087
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Blau, David M, 1998. "Labor Force Dynamics of Older Married Couples," Journal of Labor Economics, University of Chicago Press, vol. 16(3), pages 595-629, July.
  2. Aradillas-Lopez, Andres, 2010. "Semiparametric estimation of a simultaneous game with incomplete information," Journal of Econometrics, Elsevier, vol. 157(2), pages 409-431, August.
  3. repec:bla:restud:v:77:y:2010:i:3:p:1138-1163 is not listed on IDEAS
  4. Bo Honore & Aureo de Paula, 2008. "Interdependent Durations," PIER Working Paper Archive 08-007, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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