Minimax regret and strategic uncertainty

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Minimax regret and strategic uncertainty

Author Info

Ludovic Renou ()
Karl H. Schlag

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Abstract

This paper introduces a new solution concept, a minimax regret equilibrium, which allows for the possibility that players are uncertain about the rationality and conjectures of their opponents. We provide several applications of our concept. In particular, we consider pricesetting environments and show that optimal pricing policy follows a non-degenerate distribution. The induced price dispersion is consistent with experimental and empirical observations (Baye and Morgan (2004)).

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/2.

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Date of creation: Jan 2008
Date of revision: Apr 2008
Handle: RePEc:lec:leecon:08/2

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Paper
- Ludovic Renou & Karl Schlag, 2008. "Minimax regret and strategic uncertainty," Economics Working Papers 1087, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]

Find related papers by JEL classification:
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-01-12 (All new papers)
NEP-GTH-2008-01-12 (Game Theory)
NEP-UPT-2008-01-12 (Utility Models & Prospect Theory)

References listed on IDEAS
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Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
Other versions:
- Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.
Fudenberg, Drew & Levine, David K, 1993. "Self-Confirming Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 523-45, May. [Downloadable!] (restricted)
Other versions:
- Drew Fudenberg & David K. Levine, 1993. "Self-Confirming Equilibrium," Levine's Working Paper Archive 2147, UCLA Department of Economics. [Downloadable!]
- Fudenberg, D. & Levine, D.K., 1991. "Self-Confirming Equilibrium ," Working papers 581, Massachusetts Institute of Technology (MIT), Department of Economics.
Dirk Bergemann & Karl H Schlag, 2007. "Pricing without Priors," Levine's Bibliography 122247000000001557, UCLA Department of Economics. [Downloadable!]
Other versions:
- Dirk Bergemann & Karl H. Schlag, 2007. "Pricing without Priors," Cowles Foundation Discussion Papers 1625, Cowles Foundation, Yale University. [Downloadable!]
- Dirk Bergemann & Karl H. Schlag, 2008. "Pricing without Priors," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 560-569, 04-05. [Downloadable!] (restricted)
Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
Other versions:
- Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA. [Downloadable!]
- Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences With Simple Tests," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 817-869, August. [Downloadable!] (restricted)
Linhart, P. B. & Radner, R., 1989. "Minimax-regret strategies for bargaining over several variables," Journal of Economic Theory, Elsevier, vol. 48(1), pages 152-178, June. [Downloadable!] (restricted)
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Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July. [Downloadable!] (restricted)
Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing: The Case of Regret," Economics Working Papers ECO2005/10, European University Institute. [Downloadable!]
Philip J. Reny, 1999. "On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games," Econometrica, Econometric Society, vol. 67(5), pages 1029-1056, September.
Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September. [Downloadable!] (restricted)
Lo, Kin Chung, 1996. "Equilibrium in Beliefs under Uncertainty," Journal of Economic Theory, Elsevier, vol. 71(2), pages 443-484, November. [Downloadable!] (restricted)
Other versions:
- Kin Chung Lo, 1995. "Equilibrium in Beliefs Under Uncertainty," Working Papers ecpap-95-02, University of Toronto, Department of Economics. [Downloadable!]
Neeman, Zvika, 1996. "Common Beliefs and the Existence of Speculative Trade," Games and Economic Behavior, Elsevier, vol. 16(1), pages 77-96, September. [Downloadable!] (restricted)
Other versions:
- Zvika Neeman, 1993. "Common Beliefs and the Existence of Speculative Trade," Discussion Papers 1052, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Ludovic Renou & Ralph C. Bayer, 2008. "Homo Sapiens Sapiens Meets Homo Strategicus at the Laboratory," Discussion Papers in Economics 08/16, Department of Economics, University of Leicester. [Downloadable!]
Mukerji, S., 1995. "A Theory of Play for Games in Strategic Form when Rationality is not Common Knowledge," Discussion Paper Series In Economics And Econometrics 9519, Economics Division, School of Social Sciences, University of Southampton.

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