Sharp Test for Equilibrium Uniqueness in Discrete Games with a Flexible Information Structure

Mathieu Marcoux

Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ

Abstract: I propose a test for an assumption commonly maintained when estimating static discrete games of incomplete information, i.e. the assumption of equilibrium uniqueness in the data generating process. The test is appealing for several reasons. It allows for discrete common knowledge payoff-relevant unobserved heterogeneity (henceforth unobserved heterogeneity, for short). In that sense, it is more general than tests which attribute all correlation between players’ decisions to multiple equilibria. Furthermore, the test does not require the estimation of payoffs to separate multiplicity of equilibria from unobservable heterogeneity. It is therefore useful in empirical applications leveraging multiple equilibria to identify the model’s primitives when commonly-used exclusion restrictions are notavailable. Finally, it makes no parametric assumption on the payoff functions nor the distribution of players’ private information. The main identifying assumption is the existenceof an observable variable that plays the role of a proxy for the unobserved heterogeneity.The procedure boils down to testing the emptiness of the set of data generating processes that can rationalize the sample through a single equilibrium and a finite mixture over unobserved heterogeneity. Simulation evidence is provided to study the test’s properties.

Keywords: static discrete game; equilibrium uniqueness; incomplete information; common knowledge unobservable information; finite mixtures; partial identification (search for similar items in EconPapers)
Pages: 37 pages
Date: 2018
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cireqmontreal.com/wp-content/uploads/cahiers/27-2018-cah.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mtl:montec:27-2018

Access Statistics for this paper

More papers in Cahiers de recherche from Centre interuniversitaire de recherche en économie quantitative, CIREQ Contact information at EDIRC.
Bibliographic data for series maintained by Sharon BREWER ().