Proxy variables and feedback effects in decision making

Alexander Clyde

Games and Economic Behavior, 2025, vol. 153, issue C, 408-429

Abstract: When using data, an analyst often only has access to proxies of the true variables. I propose a framework that models decision makers who naively assume potentially noisy proxy variables are perfect measurements. Due to feedback from choices into data, a notion of equilibrium is required to close the model. I illustrate the concept with applications to policing/crime and market entry. In these applications, we see that very small imperfections in the proxy variable can lead to large distortions in beliefs. I show that the set of strategies that can arise as equilibria with arbitrarily close to perfect measurement coincides with a version of Self-Confirming Equilibrium.

Keywords: Proxy variables; Bounded rationality; Expectations; Misspecified models (search for similar items in EconPapers)
JEL-codes: D91 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825625001010
Full text for ScienceDirect subscribers only

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:eee:gamebe:v:153:y:2025:i:c:p:408-429

DOI: 10.1016/j.geb.2025.07.008

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().