Robust predictions in games with incomplete information

Dirk Bergemann, Stephen E. Morris

Research output: Contribution to journalArticle

52 Scopus citations

Abstract

We analyze games of incomplete information and offer equilibrium predictions that are valid for, and in this sense robust to, all possible private information structures that the agents may have. The set of outcomes that can arise in equilibrium for some information structure is equal to 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 knowledge about the private information refines the set of equilibrium predictions. We consider information sharing among firms under demand uncertainty and find new optimal information policies via the Bayes correlated equilibria. We also 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.

Original languageEnglish (US)
Pages (from-to)1251-1308
Number of pages58
JournalEconometrica
Volume81
Issue number4
DOIs
StatePublished - Jul 1 2013

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Keywords

  • Correlated equilibrium
  • Identification
  • Incomplete information
  • Information bounds
  • Linear best responses
  • Moment restrictions
  • Quadratic payoffs
  • Robustness to private information

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