Robustness to Strategic Uncertainty (Revision of DP 2010-70)
AbstractWe model a player’s uncertainty about other players’ strategy choices as smooth probability distributions over their strategy sets. We call a strategy profile (strictly) robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence (all sequences) of strategy profiles, in each of which every player’s strategy is optimal under under his or her uncertainty about the others. We derive general properties of such robustness, and apply the definition to Bertrand competition games and the Nash demand game, games that admit infinitely many Nash equilibria. We show that our robustness criterion selects a unique Nash equilibrium in the Bertrand games, and that this agrees with recent experimental findings. For the Nash demand game, we show that the less uncertain party obtains the bigger share.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2010-98.
Date of creation: 2010
Date of revision:
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Web page: http://center.uvt.nl
Nash equilibrium; refinement; strategic uncertainty; price competition; Bertrand competition; bargaining; Nash demand game;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-COM-2010-10-16 (Industrial Competition)
- NEP-EVO-2010-10-16 (Evolutionary Economics)
- NEP-GTH-2010-10-16 (Game Theory)
- NEP-HPE-2010-10-16 (History & Philosophy of Economics)
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- Bajoori Elnaz & Flesch János & Vermeulen Dries, 2011. "Perfect equilibrium in games with compact action spaces," Research Memoranda 029, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
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