Statistical Backwards Induction: A Simple Method for Estimating Recursive Strategic Models
20 Pages Posted: 18 Aug 2009 Last revised: 30 Dec 2010
Abstract
We present a simple method for estimating regressions based on recursive extensive-form games. Our procedure, which can be implemented in most standard statistical packages, involves sequentially estimating standard logits (or probits) in a manner analogous to backwards induction. We demonstrate that the technique produces consistent parameter estimates and show how to calculate consistent standard errors. To illustrate the method, we replicate Leblang’s (2003) study of speculative attacks by financial markets and government responses to these attacks.
Keywords: econometrics, statistics, games, discrete choice, strategic
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