Estimating Discrete-Choice Games of Incomplete Information: A Simple Static Example

AbstractThis paper studies the identification of players’ preferences and beliefs in discrete choice games using experimental data. The experiment comprises a set of games that differ in their matrices of monetary payoffs. The researcher is interested in the identification of preferences (utility of money) and beliefs on the opponents’ expected behavior, without imposing equilibrium restrictions or parametric assumptions on utility and belief functions. We show that the hypothesis of unbiased/rational beliefs is testable as long as the set of games in the experiment imply variation in monetary payoffs of other players, keeping the own monetary payoff constant. We present conditions for the full identification of utility and belief functions at the individual level – without restrictions on players’ heterogeneity in preferences or beliefs. We apply our method to data from two experiments: a matching pennies game, and a public good game.

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The Econometrics of Static Games

Annual Review of Economics ◽

10.1146/annurev-economics-081919-113720 ◽

2020 ◽

Vol 12 (1) ◽

pp. 135-165

Author(s):

Andrés Aradillas-López

Keyword(s):

Incomplete Information ◽

Labor Force ◽

Discrete Choice ◽

Labor Force Participation ◽

Multiple Solutions ◽

Robust Inference ◽

Future Research ◽

Rich Variety ◽

Action Spaces ◽

General Game

This article reviews the econometrics of static games, with a focus on discrete-choice cases. These models have been used to study a rich variety of empirical problems, ranging from labor force participation to entry decisions. We outline the components of a general game and describe the problem of doing robust inference in the presence of multiple solutions, as well as the different econometric approaches that have been applied to tackle this problem. We then describe the specific challenges that arise in different variations of these models depending on whether players are assumed to have complete or incomplete information, as well as whether or not nonequilibrium play is allowed. We describe the results in 2 × 2 games (the most widely studied games in econometrics), and we present extensions and recent results in games with richer action spaces. Areas for future research are also discussed.

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