Information and Interaction
AbstractWe 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. We study the connections between incomplete information and strategic interaction, we explain to what extent payoff environment and
information structure of a economy are distinguishable through the equilibrium outcomes of the economy and we analyze how equilibrium outcomes can be decomposed to understand the sources of individual and aggregate volatility.