Robust Predictions in Games with Incomplete Information
Yale University - Cowles Foundation - Department of Economics
Princeton University - Department of Economics
September 26, 2012
Cowles Foundation Discussion Paper No. 1821RR
We analyze games of incomplete information and offer equilibrium predictions which are valid for, and in this sense robust to, all possible private information structures that the agents may have. 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 knowledge about the private information refines the set of equilibrium predictions.
We consider information sharing among firms under demand uncertainty and find newly optimal information policies via the Bayes correlated equilibria. Finally, we reverse the perspective and investigate the identification problem under concerns for robustness to private information. The presence of private information leads to set rather than point identification of the structural parameters of the game.
Number of Pages in PDF File: 55
Keywords: Incomplete information, Correlated equilibrium, Robustness to private information, Moments restrictions, Identification, Informations bounds
JEL Classification: C72, C73, D43, D83
Date posted: October 18, 2012