64 Pages Posted: 27 Sep 2011
Date Written: September 26, 2011
We analyze games of incomplete information and offer equilibrium predictions which are valid for all possible private information structures that the agents may have. Our characterization of these robust predictions relies on an epistemic result which establishes a relationship between the set of Bayes Nash equilibria and the set of Bayes correlated equilibria.
We completely characterize the set of Bayes correlated equilibria in a class of games with quadratic payoffs and normally distributed uncertainty in terms of restrictions on the first and second moments of the equilibrium action-state distribution. We derive exact bounds on how prior information of the analyst refines the set of equilibrium distribution. As an application, we obtain new results regarding the optimal information sharing policy of firms under demand uncertainty.
Finally, we reverse the perspective and investigate the identification problem under concerns for robustness to private information. We show how the presence of private information leads to partial rather than complete identification of the structural parameters of the game. As a prominent example we analyze the canonical problem of demand and supply identification.
Keywords: Incomplete information, Correlated equilibrium, Robustness to private information, Moments restrictions, Identification, Information bounds
JEL Classification: C72, C73, D43, D83
Suggested Citation: Suggested Citation
Bergemann, Dirk and Morris, Stephen, Robust Predictions in Games with Incomplete Information (September 26, 2011). Cowles Foundation Discussion Paper No. 1821; Economic Theory Center Working Paper No. 023-2011. Available at SSRN: https://ssrn.com/abstract=1933781 or http://dx.doi.org/10.2139/ssrn.1933781