Journal of Economic Literature (JEL) Code(s)
C72, C73, D43, D83
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.
Bergemann, Dirk; Heumann, Tibor; and Morris, Stephen, "Information and Interaction" (2017). Cowles Foundation Discussion Papers. 196.