A Single-Judge Solution to Beauty Contests
AbstractWe show that the equilibrium policy rule in beauty contest models is equivalent to that of a single agent's forecast of the economic fundamental. This forecast is conditional on a modified information process, which simply discounts the precision of idiosyncratic shocks by the degree of strategic complementarity. The result holds for any linear Gaussian signal process (static or persistent, stationary or nonstationary, exogenous or endogenous), and also extends to network games. Theoretically, this result provides a sharp characterization of the equilibrium and its properties under dynamic information. Practically, it provides a straightforward method to solve models with complicated information structures.
CitationHuo, Zhen, and Marcelo Pedroni. 2020. "A Single-Judge Solution to Beauty Contests." American Economic Review, 110 (2): 526-68. DOI: 10.1257/aer.20170519
- C72 Noncooperative Games
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D84 Expectations; Speculations