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Unawareness, Beliefs and Games

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  • Heifetz, Aviad
  • Meier, Martin
  • Schipper, Burkhard C.

Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized “No-trade†theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the “No-agreeing-to-disagree†theorem.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 196.

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Date of creation: Mar 2007
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Handle: RePEc:trf:wpaper:196

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Related research

Keywords: unawareness; awareness; type-space; Bayesian games; incomplete information; equilibrium; common prior; agreement; speculative trade; interactive epistemology;

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References

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  1. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
  2. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2007. "Unawareness, Beliefs and Games," Bonn Econ Discussion Papers bgse6_2007, University of Bonn, Germany.
  3. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  4. Heifetz, Aviad, 2006. "The positive foundation of the common prior assumption," Games and Economic Behavior, Elsevier, vol. 56(1), pages 105-120, July.
  5. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
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Citations

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Cited by:
  1. Filiz-Ozbay, Emel, 2012. "Incorporating unawareness into contract theory," Games and Economic Behavior, Elsevier, vol. 76(1), pages 181-194.
  2. Salvatore Modica, 2008. "Unawareness, priors and posteriors," Decisions in Economics and Finance, Springer, vol. 31(2), pages 81-94, November.
  3. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2005. "A Canonical Model for Interactive Unawareness," Bonn Econ Discussion Papers bgse23_2005, University of Bonn, Germany.
  4. Blume, Andreas & Gneezy, Uri, 2010. "Cognitive forward induction and coordination without common knowledge: An experimental study," Games and Economic Behavior, Elsevier, vol. 68(2), pages 488-511, March.
  5. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
  6. Aviad Heifetz & Martin Meier & Burkhard C. Schipper, 2007. "Unawareness, Beliefs and Games," Bonn Econ Discussion Papers bgse6_2007, University of Bonn, Germany.
  7. Oliver Board, 2008. "Object-Based Unawareness: Theory and Applications," Working Papers 378, University of Pittsburgh, Department of Economics, revised Mar 2009.
  8. Feinberg, Yossi, 2012. "Games with Unawareness," Research Papers 2122, Stanford University, Graduate School of Business.
  9. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.

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