Econometric inference on a large Bayesian game with heterogeneous beliefs

Denis Kojevnikov and Kyungchul Song

Journal of Econometrics, 2023, vol. 237, issue 1

Abstract: Econometric models of strategic interactions among people or firms have received a great deal of attention in the literature. Less attention has been paid to the role of the underlying assumptions about the way agents form beliefs about other agents. We focus on a single large Bayesian game with idiosyncratic strategic neighborhoods and develop an approach of empirical modeling that relaxes the assumption of rational expectations and allows the players to form beliefs differently. By drawing on the main intuition of Kalai (2004), we introduce the notion of hindsight regret, which measures each player’s ex-post value of other players’ type information, and obtain the belief-free bound for the hindsight regret. Using this bound, we derive testable implications and develop a bootstrap inference procedure for the structural parameters. Our inference method is uniformly valid regardless of the size of strategic neighborhoods and tends to exhibit high power when the neighborhoods are large. We demonstrate the finite sample performance of the method through Monte Carlo simulations.

Keywords: Large game; Incomplete information; Heterogeneous beliefs; Bayesian equilibria; Ex post stability; Hindsight regrets; Cross-sectional dependence; Partial identification; Moment inequalities (search for similar items in EconPapers)
JEL-codes: C12 C21 C31 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:237:y:2023:i:1:s030440762300218x

DOI: 10.1016/j.jeconom.2023.105502

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