Estimation of Finite Sequential Games

Shiko Maruyama

No 2010-22, Discussion Papers from School of Economics, The University of New South Wales

Abstract: I study the estimation of finite sequential games with perfect information. The major challenge in estimation is computation of high-dimensional truncated integration whose domain is complicated by strategic interaction. I show that this complication resolves when unobserved off-the-equilibrium-path strategies are controlled for. Separately evaluating the likelihood contribution of each subgame perfect strategy profile that rationalizes the observed outcome allows the use of the GHK simulator, the most widely used importance-sampling probit simulator. Monte Carlo experiments demonstrate the performance and robustness of the proposed method, and confirm that misspecification of the decision order leads to underestimation of strategic effect.

Keywords: Inference In Discrete Games; Sequential Games; Monte Carlo Integration; GHK Simulator; Subgame Perfection; Perfect Information (search for similar items in EconPapers)
JEL-codes: C35 C63 C72 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-11
New Economics Papers: this item is included in nep-ecm and nep-gth
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Citations: View citations in EconPapers (3)

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Journal Article: Estimation of finite sequential games (2014)
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