Information and Interaction

51 Pages Posted: 24 May 2017

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Tibor Heumann

HEC Montreal

Stephen Morris

Princeton University - Department of Economics

Date Written: May 22, 2017

Abstract

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

Bergemann, Dirk and Heumann, Tibor and Morris, Stephen Edward, Information and Interaction (May 22, 2017). Cowles Foundation Discussion Paper No. 2088. Available at SSRN: https://ssrn.com/abstract=2972018 or http://dx.doi.org/10.2139/ssrn.2972018

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Tibor Heumann

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

Stephen Edward Morris

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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