A decision-maker is said to have an ambiguous belief if it is not precise enough to be represented by a single probability distribution. The pervasive assumption in game theoretic models in economics is that players' beliefs are unambiguous. This paper argues, drawing on examples from economics and politics, that it may be illuminating, in instances, to model players as having ambiguous beliefs. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements. Copyright 2009 , Oxford University Press.
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Volume (Year): 61 (2009) Issue (Month): 2 (April) Pages: 355-379 Download reference. The following formats are available: HTML
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Paper
Jürgen Eichberger & David Kelsey & Burkhard C. Schipper, 2005.
"Ambiguity and Social Interaction,"
Discussion Papers
59, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Eichberger, Jurgen & Kelsey, Davis & Schipper, Burkhard, 2007.
"Ambiguity and Social Interaction,"
Working Papers
05-36, University of California at Davis, Department of Economics.
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Jürgen Eichberger & David Kelsey & Burkhard C. Schipper, 2007.
"Ambiguity and Social Interaction,"
Working Papers
0443, University of Heidelberg, Department of Economics, revised May 2007.
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Martin J. Osborne & Ariel Rubinstein, 1994.
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Chaim Fershtman & Kenneth L Judd, 1984.
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Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Jürgen Eichberger & David Kelsey, 2004.
"Sequential Two-Player Games With Ambiguity,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1229-1261, November.
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