Estimating Sequential-move Games by a Recursive Conditioning Simulator

Sequential decision-making is a noticeable feature of strategic interactions among agents. The full estimation of sequential games, however, has been challenging due to the sheer computational burden, especially when the game is large and asymmetric. In this paper, I propose an estimation method for discrete choice sequential games that is computationally feasible, easy-to-implement, and e¢ cient, by modifying the Geweke-Hajivassiliou-Keane (GHK) simulator, the most widely used probit simulator. I show that the recursive nature of the GHK simulator is easily dovetailed with the sequential structure of strategic interactions. This paper is based on a chapter of my Ph.D. dissertation at Northwestern University. I am thankful to Leemore Dafny, David Dranove, Michael Mazzeo, Aviv Nevo, and Robert Porter for their guidance. School of Economics, University of New South Wales. E-mail: [email protected]