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Comment: Identification of a Simple Dynamic Discrete Game under Rationalizability

Author

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  • Victor Aguirregabiria

Abstract

This paper studies the identification power of rationalizability in a simple dynamic discrete game model. The paper extends to dynamic games some of the results in Aradillas-Lopez and Tamer (2007). The most commonly used equilibrium concept in empirical applications of dynamic games is Markov Perfect Equilibrium (MPE). I study the identification of structural parameters when we replace the MPE assumption with weaker conditions such as rational behavior or rationalizability. I present identification results for a simple dynamic game of market entry-exit with two players. Under the assumption of level-2 rationalizability (i.e., players are rational and they know that they are rational), exclusion restrictions and large-support conditions on the exogenous explanatory variables are sufficient for point-identification of all the structural parameters. Though the model is fully parametric, the key identifying assumptions are nonparametric in nature and it seems that these identification results might be extended to a semiparametric version of the model.

Suggested Citation

  • Victor Aguirregabiria, 2007. "Comment: Identification of a Simple Dynamic Discrete Game under Rationalizability," Working Papers tecipa-299, University of Toronto, Department of Economics.
  • Handle: RePEc:tor:tecipa:tecipa-299
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    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-299.pdf
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    References listed on IDEAS

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    1. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 147-165.
    2. Philip A. Haile & Elie Tamer, 2003. "Inference with an Incomplete Model of English Auctions," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 1-51, February.
    3. Aradillas-Lopez, Andres & Tamer, Elie, 2008. "The Identification Power of Equilibrium in Simple Games," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 261-310.
    4. Robert Aumann & Adam Brandenburger, 2014. "Epistemic Conditions for Nash Equilibrium," World Scientific Book Chapters,in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 5, pages 113-136 World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Victor Aguirregabiria & Gustavo Vicentini, 2006. "Dynamic Spatial Competition Between Multi-Store Firms," Working Papers tecipa-253, University of Toronto, Department of Economics.
    2. repec:bla:jindec:v:64:y:2016:i:4:p:710-754 is not listed on IDEAS

    More about this item

    Keywords

    Identification; Empirical dynamic discrete games; Rational behavior; Rationalizability.;

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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