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Unawareness, Beliefs and Games

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Author Info
Schipper, Burkhard (U of California, Davis)
Heifetz, Aviad (Open U of Israel)
Meier, Martin (Instituto de Analisis Economico)

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Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized `No-trade' theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the `No-agreeing-to-disagree' theorem.

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Paper provided by University of California at Davis, Department of Economics in its series Working Papers with number 07-3.

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Date of creation: Mar 2007
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Handle: RePEc:ecl:ucdeco:07-3

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C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

References listed on IDEAS
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  1. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April. [Downloadable!] (restricted)
  2. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2007. "Unawareness, Beliefs and Games," Discussion Papers 196, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  3. Heifetz, Aviad, 2006. "The positive foundation of the common prior assumption," Games and Economic Behavior, Elsevier, vol. 56(1), pages 105-120, July. [Downloadable!] (restricted)
  4. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June. [Downloadable!] (restricted)
  5. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Salvatore Modica, 2008. "Unawareness, priors and posteriors," Decisions in Economics and Finance, Springer, vol. 31(2), pages 81-94, November. [Downloadable!] (restricted)
  2. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2007. "Unawareness, Beliefs and Games," Bonn Econ Discussion Papers bgse6_2007, University of Bonn, Germany. [Downloadable!]
    Other versions:
    • Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2007. "Unawareness, Beliefs and Games," Discussion Papers 196, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    • Schipper, Burkhard & Heifetz, Aviad & Meier, Martin, 2007. "Unawareness, Beliefs and Games," Working Papers 07-3, University of California at Davis, Department of Economics. [Downloadable!]
  3. Andreas Blume & Uri Gneezy, 2009. "Cognitive Forward Induction and Coordination without Common Knowledge: An Experimental Study," Working Papers 346, University of Pittsburgh, Department of Economics, revised May 2009. [Downloadable!]
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