Information and Interaction
51 Pages Posted: 24 May 2017
Date Written: May 22, 2017
We study a linear interaction model with asymmetric information. We first characterize the linear Bayes Nash equilibrium for a class of one dimensional signals. It is then shown that this class of one dimensional signals provide a comprehensive description of the first and second moments of the distribution of outcomes for any Bayes Nash equilibrium and any information structure.
We use our results in a variety of applications: (i) we study the connections between incomplete information and strategic interaction, (ii) we explain to what extent payoff environment and information structure of a economy are distinguishable through the equilibrium outcomes of the economy, and (iii) we analyze how equilibrium outcomes can be decomposed to understand the sources of individual and aggregate volatility.
Keywords: Networks, Incomplete Information, Bayes Correlated Equilibrium, Volatility, Moments Restrictions, Linear Best Responses, Quadratic Payoffs
JEL Classification: C72, C73, D43, D83
Suggested Citation: Suggested Citation