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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. Mukerji, S., 1997. "Ambiguity aversion and incompleteness of contractual form," Discussion Paper Series In Economics And Econometrics 9715, Economics Division, School of Social Sciences, University of Southampton.
  2. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
  3. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414.
  4. Matthias Lang & Achim Wambach, 2010. "The fog of fraud – mitigating fraud by strategic ambiguity," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_24, Max Planck Institute for Research on Collective Goods.
  5. Marinacci, Massimo, 2000. "Ambiguous Games," Games and Economic Behavior, Elsevier, vol. 31(2), pages 191-219, May.
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Cited by:
  1. P Battigalli & S Cerreia-Vioglio & F Maccheroni & M Marinacci, 2012. "Selfconfirming Equilibrium and Model Uncertainty," Levine's Working Paper Archive 786969000000000376, David K. Levine.

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