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Abstract

We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing)equilibrium prices under Cournot (Bertrand) competition. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.

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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 07-19.

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Length: 34 pages
Date of creation: 20 Jun 2007
Date of revision:
Handle: RePEc:xrs:sfbmaa:07-19

Note: Financial support by ESRC grant ES-000-22-0650 (David) and the DFG, SFB/TR 15 (Burkhard) is gratefully
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Find related papers by JEL classification:

• C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
• D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
• D62 - Microeconomics - - Welfare Economics - - - Externalities
• D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

This paper has been announced in the following NEP Reports:

• NEP-ALL-2008-04-04 (All new papers)
• NEP-COM-2008-04-04 (Industrial Competition)
• NEP-EVO-2008-04-04 (Evolutionary Economics)
• NEP-GTH-2008-04-04 (Game Theory)
• NEP-SOC-2008-04-04 (Social Norms & Social Capital)
• NEP-UPT-2008-04-04 (Utility Models & Prospect Theory)

References

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