Testable implications of multiple equilibria in discrete games with correlated types

Aureo de Paula and Xun Tang ()
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Xun Tang: Institute for Fiscal Studies and Rice University

No CWP56/20, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: We study testable implications of multiple equilibria in discrete games with incomplete information. Unlike de Paula and Tang (2012), we allow the players’ private signals to be correlated. In static games, we leverage independence of private types across games whose equilibrium selection is correlated. In dynamic games with serially correlated discrete unobserved heterogeneity, our testable implication builds on the fact that the distribution of a sequence of choices and states are mixtures over equilibria and unobserved heterogeneity. The number of mixture components is a known function of the length of the sequence as well as the cardinality of equilibria and unobserved heterogeneity support. In both static and dynamic cases, these testable implications are implementable using existing statistical tools.

Date: 2020-12-02
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Working Paper: Testable Implications of Multiple Equilibria in Discrete Games with Correlated Types (2020)
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