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Ambiguity and Social Interaction

  • Juergen Eichberger
  • David Kelsey
  • Burkhard C. Schipper

We examine the impact of ambiguity on economic behaviour. We present a relatively non-technical account of ambiguity and show how it may be applied in economics. 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. We also examine the effects of ambiguity on peace processes. It is shown that ambiguity can act to 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.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse23_2003.pdf
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse23_2003.

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Length: 48
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:bon:bonedp:bgse23_2003
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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