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Unawareness, Beliefs and Games

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  • Schipper, Burkhard

    (U of California, Davis)

  • Heifetz, Aviad

    (Open U of Israel)

  • Meier, Martin

    (Instituto de Analisis Economico)

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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Bibliographic Info

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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  1. Schipper, Burkhard & Heifetz, Aviad & Meier, Martin, 2007. "Unawareness, Beliefs and Games," Working Papers 07-3, University of California at Davis, Department of Economics.
  2. Heifetz, Aviad, 2006. "The positive foundation of the common prior assumption," Games and Economic Behavior, Elsevier, vol. 56(1), pages 105-120, July.
  3. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
  4. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  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:
  1. Salvatore Modica, 2008. "Unawareness, priors and posteriors," Decisions in Economics and Finance, Springer, vol. 31(2), pages 81-94, November.
  2. Feinberg, Yossi, 2012. "Games with Unawareness," Research Papers 2122, Stanford University, Graduate School of Business.
  3. Schipper, Burkhard & Heifetz, Aviad & Meier, Martin, 2007. "Unawareness, Beliefs and Games," Working Papers 07-3, University of California at Davis, Department of Economics.
  4. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.
  5. 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.
  6. Oliver Board, 2008. "Object-Based Unawareness: Theory and Applications," Working Papers 378, University of Pittsburgh, Department of Economics, revised Mar 2009.

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