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The Strategic Use of Ambiguity

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Author Info

  • Frank Riedel

    ()
    (Institute of Mathematical Economics, Bielefeld University)

  • Linda Sass

    (Institute of Mathematical Economics, Bielefeld University)

Abstract

Ambiguity 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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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-452.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 452.

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Length: 21 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:bie:wpaper:452

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  1. Lang, Matthias & Wambach, Achim, 2013. "The fog of fraud – Mitigating fraud by strategic ambiguity," Games and Economic Behavior, Elsevier, Elsevier, vol. 81(C), pages 255-275.
  2. Mukerji, Sujoy, 1998. "Ambiguity Aversion and Incompleteness of Contractual Form," American Economic Review, American Economic Association, American Economic Association, vol. 88(5), pages 1207-31, December.
  3. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, Elsevier, vol. 30(2), pages 183-215, February.
  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061414, December.
  5. Marinacci, Massimo, 2000. "Ambiguous Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 31(2), pages 191-219, May.
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Cited by:
  1. Lang, Matthias & Wambach, Achim, 2013. "The fog of fraud – Mitigating fraud by strategic ambiguity," Games and Economic Behavior, Elsevier, Elsevier, vol. 81(C), pages 255-275.
  2. P Battigalli & S Cerreia-Vioglio & F Maccheroni & M Marinacci, 2012. "Selfconfirming Equilibrium and Model Uncertainty," Levine's Working Paper Archive 786969000000000376, David K. Levine.
  3. Gaurab Aryal & Ronald Stauber, 2013. "Trembles in Extensive Games with Ambiguity Averse Players," ANU Working Papers in Economics and Econometrics, Australian National University, College of Business and Economics, School of Economics 2013-606, Australian National University, College of Business and Economics, School of Economics.

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