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Ambiguity and Social Interaction

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Author Info
Eichberger, Jürgen () (Sonderforschungsbereich 504)
Kelsey, David () (Department of Economics, The University of Birmingham)
Schipper, Burkhard () (University of California, Davis Department of Economics)

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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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Publisher Info
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
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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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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. Chateauneuf, Alain & Eichberger, Jürgen & Grant, Simon, 2003. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Sonderforschungsbereich 504 Publications 03-10, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  2. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November. [Downloadable!] (restricted)
  3. 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)
  4. Grant, Simon & Chateauneuf, A. & Eichberger, J., 2002. "Choice under Uncertainty with the Best and Worst in Mind: Neo-additive Capacities," Working Papers 2002-10, Rice University, Department of Economics. [Downloadable!]
  5. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  6. Sarin, Rakesh & Wakker, Peter P, 1998. "Revealed Likelihood and Knightian Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 16(3), pages 223-50, July-Aug.. [Downloadable!] (restricted)
  7. Wakker, Peter P, 2001. "Testing and Characterizing Properties of Nonadditive Measures through Violations of the Sure-Thing Principle," Econometrica, Econometric Society, vol. 69(4), pages 1039-59, July.
  8. Fulvio Fontini, 2005. "Cournot Oligopoly Under Strategic Uncertainty With Optimistic And Pessimistic Firms," Metroeconomica, Blackwell Publishing, vol. 56(3), pages 318-333, 07. [Downloadable!] (restricted)
  9. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February. [Downloadable!] (restricted)
  10. Tversky, Amos & Wakker, Peter, 1995. "Risk Attitudes and Decision Weights," Econometrica, Econometric Society, vol. 63(6), pages 1255-80, November. [Downloadable!] (restricted)
  11. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February. [Downloadable!] (restricted)
  12. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen. [Downloadable!] (restricted)
  13. Green, Jerry, 1987. ""Making Book against Oneself," the Independence Axiom, and Nonlinear Utility Theory," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 785-96, November. [Downloadable!] (restricted)
  14. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  15. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February. [Downloadable!] (restricted)
  16. Jürgen Eichberger & David Kelsey & Burkhard Schipper, 2008. "Granny Versus Game Theorist: Ambiguity in Experimental Games," Theory and Decision, Springer, vol. 64(2), pages 333-362, March. [Downloadable!] (restricted)
  17. Kelsey, David, 1994. "Maxmin Expected Utility and Weight of Evidence," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 425-44, July. [Downloadable!] (restricted)
  18. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Blackwell Publishing, vol. 66(3), pages 579-608, July. [Downloadable!] (restricted)
  19. Sarin, Rakesh K & Wakker, Peter, 1992. "A Simple Axiomatization of Nonadditive Expected Utility," Econometrica, Econometric Society, vol. 60(6), pages 1255-72, November. [Downloadable!] (restricted)
  20. 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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  21. Kilka, Michael & Weber, Martin, 1998. "What Determines the Shape of the Probability Weighting Function under Uncertainty?," Sonderforschungsbereich 504 Publications 98-11, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  22. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December. [Downloadable!] (restricted)
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  23. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March. [Downloadable!] (restricted)
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  24. Truman F. Bewley, 1986. "Knightian Decision Theory: Part 1," Cowles Foundation Discussion Papers 807, Cowles Foundation, Yale University. [Downloadable!]
  25. Marinacci, Massimo, 2000. "Ambiguous Games," Games and Economic Behavior, Elsevier, vol. 31(2), pages 191-219, May. [Downloadable!] (restricted)
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Cited by:
(explanations, 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. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  2. Sandra Ludwig & Julia Nafziger, . "Do You Know That I Am Biased? An Experiment," Bonn Econ Discussion Papers bgse11_2007, University of Bonn, Germany. [Downloadable!]
  3. Felipe Zurita, 2004. "Beyond Earthquakes: The New Directions of Expected Utility Theory," Documentos de Trabajo 260, Instituto de Economía. Pontificia Universidad Católica de Chile.. [Downloadable!]
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