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Minimax regret and strategic uncertainty

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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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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-2.pdf
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Publisher Info
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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Related research
Keywords: minimax regret rationality conjectures price dispersion auction

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

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References listed on IDEAS
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. 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)
  2. 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:
  3. Fudenberg, Drew & Levine, David K, 1993. "Self-Confirming Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 523-45, May. [Downloadable!] (restricted)
    Other versions:
  4. Dirk Bergemann & Karl H Schlag, 2007. "Pricing without Priors," Levine's Bibliography 122247000000001557, UCLA Department of Economics. [Downloadable!]
    Other versions:
  5. 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:
  6. 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)
  7. Bernheim, B Douglas, 1984. "Rationalizable Strategic Behavior," Econometrica, Econometric Society, vol. 52(4), pages 1007-28, July. [Downloadable!] (restricted)
  8. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July. [Downloadable!] (restricted)
  9. Dirk Bergemann & Karl Schlag, 2005. "Robust Monopoly Pricing: The Case of Regret," Economics Working Papers ECO2005/10, European University Institute. [Downloadable!]
  10. 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.
  11. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September. [Downloadable!] (restricted)
  12. Lo, Kin Chung, 1996. "Equilibrium in Beliefs under Uncertainty," Journal of Economic Theory, Elsevier, vol. 71(2), pages 443-484, November. [Downloadable!] (restricted)
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  13. 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:
  14. 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!]
  15. 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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