CFDP Revision Date
Journal of Economic Literature (JEL) Code(s)
C72, D44, D82, D83
We describe a methodology for making counterfactual predictions in settings where the information held by strategic agents and the distribution of payoﬀ-relevant states of the world are unknown. The analyst observes behavior assumed to be rationalized by a Bayesian model, in which agents maximize expected utility, given partial and diﬀerential information about the state. A counterfactual prediction is desired about behavior in another strategic setting, under the hypothesis that the distribution of the state 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, the counterfactual prediction is described by ﬁnitely many linear inequalities, even though the latent parameter, the information structure, is inﬁnite dimensional.
Bergemann, Dirk; Brooks, Benjamin; and Morris, Stephen, "Counterfactuals with Latent Information" (2019). Cowles Foundation Discussion Papers. 2646.