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Selfconfirming Equilibrium and Model Uncertainty

  • P Battigalli
  • S Cerreia-Vioglio
  • F Maccheroni
  • M Marinacci

We analyze a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: by playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of "status quo bias" emerges; in the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not. (JEL C72, C73, D81, D83)

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 786969000000000376.

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Date of creation: 15 Feb 2012
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Handle: RePEc:cla:levarc:786969000000000376
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Azrieli, Yaron, 2009. "Categorizing others in a large game," Games and Economic Behavior, Elsevier, vol. 67(2), pages 351-362, November.
  2. Levine, David & Fudenberg, Drew, 2006. "Superstition and Rational Learning," Scholarly Articles 3196330, Harvard University Department of Economics.
  3. Rubinstein Ariel & Wolinsky Asher, 1994. "Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability," Games and Economic Behavior, Elsevier, vol. 6(2), pages 299-311, March.
  4. Eichberger, Jurgen & Kelsey, David, 2000. "Non-Additive Beliefs and Strategic Equilibria," Games and Economic Behavior, Elsevier, vol. 30(2), pages 183-215, February.
  5. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Martin J Osborne & Ariel Rubinstein, 2009. "A Course in Game Theory," Levine's Bibliography 814577000000000225, UCLA Department of Economics.
  7. Yaron Azrieli, 2009. "On pure conjectural equilibrium with non-manipulable information," International Journal of Game Theory, Springer, vol. 38(2), pages 209-219, June.
  8. Frank Riedel & Linda Sass, 2011. "The Strategic Use of Ambiguity," Center for Mathematical Economics Working Papers 452, Center for Mathematical Economics, Bielefeld University.
  9. Drew Fudenberg & David K. Levine, 1996. "The Theory of Learning in Games," Levine's Working Paper Archive 624, David K. Levine.
  10. Sujoy Mukerji & Peter Klibanoff, 2002. "A Smooth Model of Decision,Making Under Ambiguity," Economics Series Working Papers 113, University of Oxford, Department of Economics.
  11. Lehrer, Ehud & Teper, Roee, 2011. "Justifiable preferences," Journal of Economic Theory, Elsevier, vol. 146(2), pages 762-774, March.
  12. Ignacio Esponda, 2008. "Behavioral Equilibrium in Economies with Adverse Selection," American Economic Review, American Economic Association, vol. 98(4), pages 1269-91, September.
  13. Ehud Lehrer, 2012. "Partially Specified Probabilities: Decisions and Games," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 70-100, February.
  14. Chaim Fershtman & Ariel Pakes, 2012. "Dynamic Games with Asymmetric Information: A Framework for Empirical Work," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1611-1661.
  15. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Classical Subjective Expected Utility," Working Papers 400, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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