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A priori knowledge usually enables us to decide that some coefficients must be zero in the particular equation, while they assume non-zero values in other equations of the system. We said that identification of an equation is based on variables not included (not appearing) in it. To be identifiable an equation must be independent of one or more important variables, which are included in other equations of the system. Such excluded variables, if operative during the sample period, will generate shifts in the other equations of the model, which will in turn identify the particular equation from which they are absent (i.e. in which they appear with zero coefficient).
Based on the a priori information a list can be prepared, which should be as complete as possible, of the factors which are relevant to the phenomenon being studied. The list can help us decide which of these factors would normally appear in each relationship. For example, assume that we want to study the demand for an agricultural product. The demand equation belongs to a system of equations describing the market mechanism.
What is the Iterated Dominant Strategy Equilibrium (IDSE) and associated pay-offs? Type your answer in the following form: (c,B) , (6, 4) if you think the outcome is
Combining Simultaneous and Sequential Moves The material in this chapter covers a variety of issues that require some knowledge of the analysis of both sequential- move
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Something in a very game is Mutual information if all players realize it. A seemingly straightforward concept, mutual information is insufficient to research most games, since it's
Equilibrium payoffs a) The reward system changes payoffs for Player A, but does not change the equilibrium strategies in the game. Player A still takes the money at the fir
Two individuals use a common resource (a river or a forest, for example) to produce output. The more the resource is used, the less output any given individual can produce. Denote
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Suppose that the incumbent monopolist, in the previous question, can decide (before anything else happens) to make an irreversible investment in extra Capacity (C), or Not (N). If
Tower defense - is a subgenre of real-time strategy games. The goal of tower defense games is to try to stop enemies from crossing a map by building towers which shoot at them as t
Identification is closely related to the estimation of the model. If an equation is identified, its coefficient can, in general, be statistically estimated. In particula
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