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Incomplete Information Robustness

Author

Listed:
  • Takashi Ui

    (Department of Economics, Hitotsubashi University)

  • Stephen Morris

    (Department of Economics, Massachusetts Institute of Technology)

Abstract

Consider an analyst who models a strategic situation in terms of an incomplete information game and makes a prediction about players’ behavior. The analyst’s model approximately describes each player’s hierarchies of beliefs over payoff-relevant states, but the true incomplete information game may have correlated duplicated belief hierarchies, and the analyst has no information about the correlation. Under these circumstances, a natural candidate for the analyst’s prediction is the set of belief-invariant Bayes correlated equilibria (BIBCE) of the analyst’s incomplete information game. We introduce the concept of robustness for BIBCE: a subset of BIBCE is robust if every nearby incomplete information game has a BIBCE that is close to some BIBCE in this set. Our main result provides a sufficient condition for robustness by introducing a generalized potential function of an incomplete information game. A generalized potential function is a function on the Cartesian product of the set of states and a covering of the action space which incorporates some information about players’ preferences. It is associated with a belief-invariant correlating device such that a signal sent to a player is a subset of the player’s actions, which can be interpreted as a vague prescription to choose some action from this subset. We show that, for every belief-invariant correlating device that maximizes the expected value of a generalized potential function, there exists a BIBCE in which every player chooses an action from a subset of actions prescribed by the device, and that the set of such BIBCE is robust, which can differ from the set of potential maximizing BNE.

Suggested Citation

  • Takashi Ui & Stephen Morris, 2020. "Incomplete Information Robustness," Working Papers on Central Bank Communication 019, University of Tokyo, Graduate School of Economics.
  • Handle: RePEc:upd:utmpwp:019
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    References listed on IDEAS

    as
    1. Ui, Takashi, 2001. "Robust Equilibria of Potential Games," Econometrica, Econometric Society, vol. 69(5), pages 1373-1380, September.
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    More about this item

    Keywords

    Bayes correlated equilibria; belief hierarchies; belief invariance; generalized potentials; incomplete information games; potential games;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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