Counterfactuals with Latent Information

26 Pages Posted: 31 Jan 2019

See all articles by Dirk Bergemann

Dirk Bergemann

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

Benjamin A. Brooks

Princeton University - Department of Economics

Stephen Morris

Princeton University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 27, 2019

Abstract

We describe a methodology for making counterfactual predictions when the information held by strategic agents is a latent parameter. The analyst observes behavior which is rationalized by a Bayesian model in which agents maximize expected utility given partial and differential information about payoff-relevant states of the world. A counterfactual prediction is desired about behavior in another strategic setting, under the hypothesis that the distribution of and agents’ information about the state are held fixed. When the data and the desired counterfactual prediction pertain to environments with finitely many states, players, and actions, there is a finite dimensional description of the sharp counterfactual prediction, even though the latent parameter, the type space, is infinite dimensional.

Keywords: Counterfactuals, Bayes correlated equilibrium, Information structure, Type space, Linear program

JEL Classification: C72, D44, D82, D83

Suggested Citation

Bergemann, Dirk and Brooks, Benjamin A. and Morris, Stephen Edward, Counterfactuals with Latent Information (January 27, 2019). Cowles Foundation Discussion Paper No. 2162 (2019). Available at SSRN: https://ssrn.com/abstract=3324029 or http://dx.doi.org/10.2139/ssrn.3324029

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

Benjamin A. Brooks

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Stephen Edward Morris

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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