Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information

Aureo de Paula and Xun Tang

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: This paper studies the inference of interaction effects, i.e., the impacts of players' actions on each other's payoffs, in discrete simultaneous games with incomplete information. We propose an easily implementable test for the signs of state-dependent interaction effects that does not require parametric specifications of players' payoffs, the distributions of their private signals or the equilibrium selection mechanism. The test relies on the commonly invoked assumption that players' private signals are independent conditional on observed states. The procedure is valid in the presence of multiple equilibria, and, as a by-product of our approach, we propose a formal test for multiple equilibria in the data-generating process. We provide Monte Carlo evidence of the test's good performance in finite samples. We also implement the test to infer the direction of interaction effects in couples' joint retirement decisions using data from the Health and Retirement Study.

Keywords: identification; inference; multiple equilibria; incomplete information games (search for similar items in EconPapers)
JEL-codes: C01 C72 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2010-04-01
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (46)

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Related works:
Journal Article: Inference of Signs of Interaction Effects in Simultaneous Games With Incomplete Information (2012)
Working Paper: Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:10-010

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