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Incomplete Information Games with Multiple Priors

Author

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  • Atsushi Kajii

    (Institute of Economic Research, Kyoto University)

  • Takashi Ui

    (Faculty of Economics, Yokohama National University)

Abstract

We present a model of incomplete information games with sets of priors. Upon arrival of private information, each player "updates" by the Bayes rule each of priors in this set to construct the set of posteriors consistent with the arrived piece of information. Then the player uses a possibly proper subset of this set of posteriors to form beliefs about the opponents' strategic choices. And finally the player evaluates his actions by the most pessimistic posterior beliefs `a la Gilboa and Schmeidler (1989). So each player's preferences may exhibit non-linearity in probabilities which can be interpreted as the player's aversion to ambiguity or uncertainty. In this setup, we define a couple of equilibrium concepts, establish existence results for them, and demonstrate by examples how players' views on uncertainty about the environment affect the strategic outcomes.

Suggested Citation

  • Atsushi Kajii & Takashi Ui, 2004. "Incomplete Information Games with Multiple Priors," KIER Working Papers 583, Kyoto University, Institute of Economic Research.
    • Handle: RePEc:kyo:wpaper:583
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    File URL: http://www.kier.kyoto-u.ac.jp/DP/DP583.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    incomplete information games; multiple priors; ambiguity aversion; uncertainty aversion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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