Paper by Fellow Marcelo Zouain Pedroni in American Economic Review
The paper entitled "A Single-Judge Solution to Beauty Contests" co-authored by fellow Marcelo Zouain Pedroni (University of Amsterdam), is forthcoming in the American Economic Review. The paper is joint work with Zhen Huo (Yale University, United States).
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.
Keywords: Dispersed Information, Beauty-Contest Model, Higher-Order Beliefs
View publication on the AER website.