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Identification of Non-Equilibrium Beliefs in Games of Incomplete Information Using Experimental Data

Victor Aguirregabiria ORCID logo and Erhao Xie

Abstract

This paper studies the identification of players’ preferences and beliefs in discrete choice games using experimental data. The experiment comprises a set of games that differ in their matrices of monetary payoffs. The researcher is interested in the identification of preferences (utility of money) and beliefs on the opponents’ expected behavior, without imposing equilibrium restrictions or parametric assumptions on utility and belief functions. We show that the hypothesis of unbiased/rational beliefs is testable as long as the set of games in the experiment imply variation in monetary payoffs of other players, keeping the own monetary payoff constant. We present conditions for the full identification of utility and belief functions at the individual level – without restrictions on players’ heterogeneity in preferences or beliefs. We apply our method to data from two experiments: a matching pennies game, and a public good game.

JEL Classification: C57; C72

Acknowledgement

We would like to thank the editor and two anonymous referees for their helpful and constructive feedback. We have benefited from comments and helpful discussions with Martin Burda, Evan Calford, Robert Gazzale, Tanjim Hossain, Arvind Magesan, Yesim Orhun, David Pacini, Eduardo Souza-Rodrigues, Colin Stewart, Junichi Suzuki, Ruli Xiao, and especially Ryan Webb. We also thank comments from seminar participants at Bristol, Cornell, and Warwick, and at the Behavioral Industrial Organization & Marketing Symposium (in Ann Arbor, in 2019), the Canadian Economic Association conference (in Banff, in 2019), and the Economics Science Association North American meeting (in Tucson, in 2016). This research has been supported by the Social Sciences and Humanities Research Council of Canada.

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Published Online: 2020-03-27

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