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Optimism and Pessimism in Games

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  • Jurgen Eichberger

    (Alfred Weber Institut, Universitat Heidelberg)

  • David Kelsey

    (Department of Economics, University of Exeter)

Abstract

This paper considers the impact of ambiguity in strategic situations. It extends the earlier literature by allowing for optimistic responses to ambiguity. Ambiguity is modelled by CEU preferences. We study comparative statics of changes in ambiguity-attitude in games with strategic complements or substitutes. This gives a precise statement of the impact of ambiguity on economic behaviour. We also the possibility that players may be overconfident in the sense of over-estimating the probability of favourable outcomes. This has a similar effect of increasing equilibrium strategies in games of strategic complements, Finally we consider RDEU preferences.

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File URL: http://people.exeter.ac.uk/cc371/RePEc/dpapers/DP0605.pdf
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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 0605.

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Date of creation: 2006
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Handle: RePEc:exe:wpaper:0605

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
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Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: Ambiguity in games; overcon?fidence; strategic complementarity; optimism; RDEU.;

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Cited by:
  1. Daniel Laskar, 2013. "Ambiguity, Pessimism, Optimism and Financial Crises in a Simple Global Game Model," PSE Working Papers hal-00811923, HAL.
  2. repec:hal:wpaper:hal-00811923 is not listed on IDEAS
  3. Dimitrios Diamantaras & Robert P. Gilles, 2010. "Ambiguity, Social Opinion and the Use of Common Property Resources," DETU Working Papers, Department of Economics, Temple University 1006, Department of Economics, Temple University.
  4. Eichberger, Jürgen & Kelsey, David, 2008. "Are the Treasures of Game Theory Ambiguous?," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 08-08, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  5. Thomas Jungbauer & Klaus Ritzberger, 2011. "Strategic games beyond expected utility," Economic Theory, Springer, Springer, vol. 48(2), pages 377-398, October.
  6. David Kelsey & Tigran Melkonyan, 2014. "Contests with Ambiguity," Discussion Papers, Exeter University, Department of Economics 1411, Exeter University, Department of Economics.

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