The Strategic Use of Ambiguity
AbstractAmbiguity can be used as a strategic device in some situations. To demonstrate this, we propose and study a framework for normal form games where players can use Knightian uncertainty strategically. In such Ellsberg games, players may use Ellsberg urns in addition to the standard objective mixed strategies. We assume that players are ambiguity-averse in the sense of Gilboa and Schmeidler. While classical Nash equilibria remain equilibria in the new game, there arise new Ellsberg equilibria that can be quite different from Nash equilibria. A negotiation game with three players illustrates this finding. Another class of examples shows the use of ambiguity in mediation. We also highlight some conceptually interesting properties of Ellsberg equilibria in two person games with conflicting interests.
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Bibliographic InfoPaper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 452.
Length: 21 pages
Date of creation: Aug 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-EVO-2011-08-09 (Evolutionary Economics)
- NEP-GTH-2011-08-09 (Game Theory)
- NEP-HPE-2011-08-09 (History & Philosophy of Economics)
- NEP-MIC-2011-08-09 (Microeconomics)
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