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Ambiguous Act Equilibria

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  • Sophie Bade

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    (Max Planck Institute for Research on Collective Goods, Bonn)

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    Abstract

    A game-theoretic framework that allows for explicitly randomized strategies is used to study the effect of ambiguity aversion on equilibrium outcomes. The notions of "independent strategies" as well as of "common priors" are amended to render them applicable to games in which players lack probabilistic sophistication. Within this framework the equilibrium predictions of two player games with ambiguity averse and with ambiguity neutral players are observationally equivalent. This equivalence result does not extend to the case of games with more than two players. A translation of the concept of equilibrium in beliefs to the context of ambiguity aversion yields substantially di erent predictions – even for the case with just two players.

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    Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_09.

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    Date of creation: Mar 2010
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    Handle: RePEc:mpg:wpaper:2010_09

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    Keywords: Uncertainty Aversion; Nash Equilibrium; Ambiguity;

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    1. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011. "Uncertainty averse preferences," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1275-1330, July.
    2. Andreas Pape & Subir Bose & Emre Ozdenoren, 2004. "Optimal auctions with ambiguity," Econometric Society 2004 North American Summer Meetings 609, Econometric Society.
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