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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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)

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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.
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:
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- Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA. [Downloadable!]
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Other versions:
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Other versions:
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Other versions:
- Kin Chung Lo, 1995. "Equilibrium in Beliefs Under Uncertainty," Working Papers ecpap-95-02, University of Toronto, Department of Economics. [Downloadable!]
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