A Single-Judge Solution to Beauty Contests
-
Huo Zhen
-
Marcelo Pedroni
- American Economic Review (Forthcoming)
Abstract
We 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 non-stationary, 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.
Forthcoming Article Downloads
