Trembles in Extensive Games with Ambiguity Averse Players
AbstractWe introduce and analyze three definitions of equilibrium for finite extensive games with imperfect information and ambiguity averse players. In a setting where players' preferences are represented by maxmin expected utility as characterized in Gilboa and Schmeidler (1989), our definitions capture the intuition that players may consider the possibility of slight mistakes, analogous to the intuition leading to trembling-hand perfect equilibrium as introduced in Selten (1975). We prove existence for two of our equilibrium notions, and relate our definitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to distinct behavioral implications, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies.
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Bibliographic InfoPaper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2013-606.
Length: 28 Pages
Date of creation: Mar 2013
Date of revision:
Extensive games; Ambiguity; Maxmin;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-CTA-2013-03-23 (Contract Theory & Applications)
- NEP-GTH-2013-03-23 (Game Theory)
- NEP-HPE-2013-03-23 (History & Philosophy of Economics)
- NEP-MIC-2013-03-23 (Microeconomics)
- NEP-UPT-2013-03-23 (Utility Models & Prospect Theory)
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