Social interactions under incomplete information with heterogeneous expectations

Chao Yang and Lung-Fei Lee

Journal of Econometrics, 2017, vol. 198, issue 1, 65-83

Abstract: We analyze social interactions where the conditional expectations about group members’ behaviors are heterogeneous with individual features as well as asymmetric private information, under the framework of a simultaneous move game with incomplete information. A functional contraction mapping is used to establish the existence of a unique Bayesian Nash equilibrium. The method of nested fixed point maximum likelihood estimation performs well for both linear and binary choice models. If heterogeneity is assumed away, estimates will be biased. For the 2011 National Youth Tobacco Survey data, significant peer effects on juvenile tobacco use are found.

Keywords: Social interactions; Network links; Equilibrium expectations; Incomplete information game; Contraction mapping; Gaussian quadrature (search for similar items in EconPapers)
JEL-codes: C31 C35 C57 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:198:y:2017:i:1:p:65-83

DOI: 10.1016/j.jeconom.2016.11.010

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