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Ambiguity and Social Interaction

  • Jürgen Eichberger

    ()

    (University of Heidelberg, Department of Economics)

  • David Kelsey

    ()

    (University of Exeter, Department of Economics)

  • Burkhard C. Schipper

    ()

    (University of California, Davis, Department of Economics)

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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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp443.pdf
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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0443.

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Length: 34 pages
Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:awi:wpaper:0443
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