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Minimax regret and strategic uncertainty

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  • Renou, Ludovic
  • Schlag, Karl H.

Abstract

This paper introduces a new solution concept, a minimax regret equilibrium, which allows for the possibility that players are uncertain about the rationality and conjectures of their opponents. We provide several applications of our concept. In particular, we consider price-setting environments and show that optimal pricing policy follows a non-degenerate distribution. The induced price dispersion is consistent with experimental and empirical observations (Baye and Morgan (2004) [4]).

Suggested Citation

  • Renou, Ludovic & Schlag, Karl H., 2010. "Minimax regret and strategic uncertainty," Journal of Economic Theory, Elsevier, vol. 145(1), pages 264-286, January.
    • Handle: RePEc:eee:jetheo:v:145:y:2010:i:1:p:264-286
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    More about this item

    Keywords

    Minimax regret Rationality Conjectures Price dispersion Auction;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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