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Ambiguity and Social Interaction

Author

Listed:
  • Burkhard C. Schipper
  • David Kelsey

    (Department of Economics, University of California Davis)

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.

Suggested Citation

  • Burkhard C. Schipper & David Kelsey, 2005. "Ambiguity and Social Interaction," Working Papers 56, University of California, Davis, Department of Economics.
  • Handle: RePEc:cda:wpaper:56
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    References listed on IDEAS

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    More about this item

    Keywords

    Ambiguity; Optimism; Pessimism; Strategic Games; Oligopoly; Strategic Delegation; Peace-making; Strategic Complements; Choquet Expected Utility;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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