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μ-σ Games

  • Uwe Dulleck

    ()

    (QUT)

  • Andreas Loffler

    ()

Risk aversion in game theory is usually modelled using expected utility, which has been critized early on leading to an extensive literature on generalized expected utility. In this paper we are first to apply μ-σ theory to the analysis of (static) games. μ-σ theory is widely accepted in the finance literature, using it allows us to study the effect on uncertainty endogenous to the game, i.e. mixed equilibria. In particular, we look at the case of linear μ-σ utility functions and determine the best response strategy. In the case of 2x2- and NxM-games we are able to characterize all mixed equilibria.

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File URL: http://www.ncer.edu.au/papers/documents/WP78.pdf
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Paper provided by National Centre for Econometric Research in its series NCER Working Paper Series with number 78.

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Length: 14 pages
Date of creation: 13 Jan 2012
Date of revision:
Handle: RePEc:qut:auncer:2012_1
Contact details of provider: Phone: 07 3138 5066
Fax: 07 3138 1500
Web page: http://www.ncer.edu.au

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  1. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
  2. Lars Tyge Nielsen & Fatma Lajeri, 2000. "Parametric characterizations of risk aversion and prudence," Economic Theory, Springer, vol. 15(2), pages 469-476.
  3. Ho-Chyuan Chen & William Neilson, 1999. "Pure-strategy Equilibria with Non-expected Utility Players," Theory and Decision, Springer, vol. 46(2), pages 201-212, April.
  4. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  5. Fatma Lajeri-Chaherli, 2002. "More on Properness: The Case of Mean-Variance Preferences," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 27(1), pages 49-60, June.
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