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Incomplete Information Games With Multiple Priors

  • ATSUSHI KAJII
  • TAKASHI UI

We present a model of incomplete information games with sets of priors. Upon arrival of private information, each player "updates" by the Bayes rule each of priors in this set to construct the set of posteriors consistent with the arrived piece of information. Then the player uses a possibly proper subset of this set of posteriors to form beliefs about the opponents' strategic choices. And finally the player evaluates his actions by the most pessimistic posterior beliefs `a la Gilboa and Schmeidler (1989). So each player's preferences may exhibit non-linearity in probabilities which can be interpreted as the player's aversion to ambiguity or uncertainty. In this setup, we define a couple of equilibrium concepts, establish existence results for them, and demonstrate by examples how players' views on uncertainty about the environment affect the strategic outcomes.

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Article provided by Japanese Economic Association in its journal Japanese Economic Review.

Volume (Year): 56 (2005)
Issue (Month): 3 ()
Pages: 332-351

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Handle: RePEc:bla:jecrev:v:56:y:2005:i:3:p:332-351
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  1. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
  2. Kin Chung Lo, 1995. "Equilibrium in Beliefs Under Uncertainty," Working Papers ecpap-95-02, University of Toronto, Department of Economics.
  3. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275, Cowles Foundation for Research in Economics, Yale University.
  4. Mukerji Sujoy & Shin Hyun Song, 2002. "Equilibrium Departures from Common Knowledge in Games with Non-Additive Expected Utility," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 2(1), pages 1-30, June.
  5. Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992. "Nash equilibrium under knightian uncertainty: breaking-down backward induction," Economics Working Papers (Ensaios Economicos da EPGE) 186, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Harsanyi, John C., 1994. "Games with Incomplete Information," Nobel Prize in Economics documents 1994-1, Nobel Prize Committee.
  7. Epstein, L.G. & Zhang, J., 1998. "Subjective Probabilities on Subjectivity Unambiguous Event," RCER Working Papers 456, University of Rochester - Center for Economic Research (RCER).
  8. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
  9. Larry G. Epstein & Jiankang Zhang, 1999. "Subjective Probabilities on Subjectively Unambiguous Events," Carleton Economic Papers 99-18, Carleton University, Department of Economics.
  10. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  11. Epstein, Larry G & Wang, Tan, 1996. ""Beliefs about Beliefs" without Probabilities," Econometrica, Econometric Society, vol. 64(6), pages 1343-73, November.
  12. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Robert J Aumann, 1999. "Agreeing to Disagree," Levine's Working Paper Archive 512, David K. Levine.
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  15. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
  16. Kin Chung Lo, 1998. "Sealed bid auctions with uncertainty averse bidders," Economic Theory, Springer, vol. 12(1), pages 1-20.
  17. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
  18. Atsushi Kajii & Takashi Ui, 2004. "Trade with Heterogeneous Multiple Priors," KIER Working Papers 582, Kyoto University, Institute of Economic Research.
  19. Itzhak Gilboa & David Schmeidler, 1991. "Updating Ambiguous Beliefs," Discussion Papers 924, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Lo, Kin Chung, 2002. "Correlated equilibrium under uncertainty," Mathematical Social Sciences, Elsevier, vol. 44(2), pages 183-209, November.
  21. Crawford, Vincent P., 1990. "Equilibrium without independence," Journal of Economic Theory, Elsevier, vol. 50(1), pages 127-154, February.
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