A Semiparametric Test of Agent's Information Sets for Games of Incomplete Information

Salvador Navarro and Yuya Takahashi

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We propose semiparametric tests of misspecification of agent's information for games of incomplete information. The tests use the intuition that the opponent's choices should not predict a player's choice conditional on the proposed information available to the player. The tests are designed to check against some commonly used null hypotheses (Bajari et al. (2010), Aradillas-Lopez (2010)). We show that our tests have power to discriminate between common alternatives even in small samples. We apply our tests to data on entry in the US airline industry. Both the assumptions of independent and correlated private shocks are not supported by the data.

Date: 2012-03-15
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Citations: View citations in EconPapers (5)

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