Working Paper: NBER ID: w12013
Authors: Patrick Bajari; Han Hong; John Krainer; Denis Nekipelov
Abstract: We propose a method for estimating static games of incomplete information. A static game is a generalization of a discrete choice model, such as a multinomial logit or probit, which allows the actions of a group of agents to be interdependent. Unlike most earlier work, the method we propose is semiparametric and does not require the covariates to lie in a discrete set. While the estimator we propose is quite flexible, we demonstrate that in most cases it can be easily implemented using standard statistical packages such as STATA. We also propose an algorithm for simulating the model which finds all equilibria to the game. As an application of our estimator, we study recommendations for high technology stocks between 1998-2003. We find that strategic motives, typically ignored in the empirical literature, appear to be an important consideration in the recommendations submitted by equity analysts.
Keywords: static games; strategic interaction; equity analysts; recommendations; peer effects; conflicts of interest
JEL Codes: L0; L5; C1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| strategic motives (L21) | stock analysts' recommendations (G24) |
| market fundamentals (G10) | stock analysts' recommendations (G24) |
| shared expectations about future profitability (D84) | stock analysts' recommendations (G24) |
| analysts' heterogeneous talent (D29) | private beliefs about stocks (G41) |
| access to information (L86) | private beliefs about stocks (G41) |
| private beliefs about stocks (G41) | stock analysts' recommendations (G24) |
| peer effects (C92) | stock analysts' recommendations (G24) |
| performance evaluations (M51) | peer effects (C92) |
| analysts' recommendations (G24) | perceived industry norms (L19) |