'Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information', Second Version

52 Pages Posted: 15 Feb 2011

See all articles by Aureo de Paula

Aureo de Paula

University College London - Department of Economics

Xun Tang

Rice University - Department of Economics

Date Written: February 12, 2011

Abstract

This paper studies the inference of interaction effects (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 (but does not rely on) the presence of multiple equilibria in the data-generating process (DGP). As a by-product, we propose a formal test for multiple equilibria in the DGP. We also show how to extend our arguments to identify signs of interaction effects when private signals are correlated. We provide Monte Carlo evidence of the test's good performance in finite samples. We then implement the test using data on radio programming of commercial breaks in the U.S., and infer stations' incentives to synchronize their commercial breaks. Our results support the earlier finding by Sweeting (2009) that stations have stronger incentives

Keywords: identification, inference, multiple equilibria, incomplete information games

JEL Classification: C01, C72

Suggested Citation

de Paula, Aureo and Tang, Xun, 'Inference of Signs of Interaction Effects in Simultaneous Games with Incomplete Information', Second Version (February 12, 2011). PIER Working Paper No. 11-003, Available at SSRN: https://ssrn.com/abstract=1761377 or http://dx.doi.org/10.2139/ssrn.1761377

Aureo De Paula (Contact Author)

University College London - Department of Economics ( email )

Gower Street
London WC1E 6BT, WC1E 6BT
United Kingdom

Xun Tang

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

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