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Identification of Non-Equilibrium Beliefs in Games of Incomplete Information Using Experimental Data

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  • Aguirregabiria Victor

    (Department of Economics, University of Toronto and CEPR, 150 St. George Street, Toronto, Ontario M5S 3G7, Canada)

  • Xie Erhao

    (Bank of Canada, Ottawa, Ontario, Canada)

Abstract

This paper studies the identification of players’ preferences and beliefs in discrete choice games using experimental data. The experiment comprises a set of games that differ in their matrices of monetary payoffs. The researcher is interested in the identification of preferences (utility of money) and beliefs on the opponents’ expected behavior, without imposing equilibrium restrictions or parametric assumptions on utility and belief functions. We show that the hypothesis of unbiased/rational beliefs is testable as long as the set of games in the experiment imply variation in monetary payoffs of other players, keeping the own monetary payoff constant. We present conditions for the full identification of utility and belief functions at the individual level – without restrictions on players’ heterogeneity in preferences or beliefs. We apply our method to data from two experiments: a matching pennies game, and a public good game.

Suggested Citation

  • Aguirregabiria Victor & Xie Erhao, 2021. "Identification of Non-Equilibrium Beliefs in Games of Incomplete Information Using Experimental Data," Journal of Econometric Methods, De Gruyter, vol. 10(1), pages 1-26, January.
    • Handle: RePEc:bpj:jecome:v:10:y:2021:i:1:p:26:n:4
    DOI: 10.1515/jem-2019-0029
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    Cited by:

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    2. Evan Friedman & Duarte Gonc{c}alves, 2023. "Quantal Response Equilibrium with a Continuum of Types: Characterization and Nonparametric Identification," Papers 2307.08011, arXiv.org, revised Mar 2024.

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    More about this item

    Keywords

    biased beliefs; coordination game; games of incomplete information; strategic uncertainty;
    All these keywords.

    JEL classification:

    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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