CFDP 2088

Information and Interaction

Author(s): 

Publication Date: May 2017

Pages: 50

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 Codes: C72, C73, D43, D83

JEL Classification Codes: C72C73D43D83