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Extensive Form Games with Uncertainty Averse Players

  • Kin Chung Lo

Existing equilibrium concepts for games make use of the subjective expected utility model axiomatized by Savage (1954) to represent players' preferences. Accordingly, each player's beliefs about the strategies played by opponents are represented by a probability measure. Motivated by the Ellsberg Paradox and relevant experimental findings demonstrating that the beliefs of a decision maker may not be representable by a probability measure, this paper generalizes Nash Equilibrium in finite extensive form games to allow for preferences conforming to the multiple priors model developed in Gilboa and Schmeidler (1989). The implications of this generalization for strategy choices and welfare are studied.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number ecpap-95-03.

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Length: 27 pages
Date of creation: 09 Jul 1995
Date of revision:
Handle: RePEc:tor:tecipa:ecpap-95-03
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  1. Kin Chung Lo, 1999. "Nash equilibrium without mutual knowledge of rationality," Economic Theory, Springer, vol. 14(3), pages 621-633.
  2. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
  3. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  4. Machina, Mark J, 1989. "Dynamic Consistency and Non-expected Utility Models of Choice under Uncertainty," Journal of Economic Literature, American Economic Association, vol. 27(4), pages 1622-68, December.
  5. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, June.
  6. Epstein Larry G. & Le Breton Michel, 1993. "Dynamically Consistent Beliefs Must Be Bayesian," Journal of Economic Theory, Elsevier, vol. 61(1), pages 1-22, October.
  7. Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
  8. Karni, E. & Safra, Z., 1988. "Ascending Bid Auctions With Behaviorally Consistent Bidders," Papers 1-88, Tel Aviv.
  9. E. Kohlberg & J.-F. Mertens, 1998. "On the Strategic Stability of Equilibria," Levine's Working Paper Archive 445, David K. Levine.
  10. Machina,Mark & Schmeidler,David, 1991. "A more robust definition of subjective probability," Discussion Paper Serie A 365, University of Bonn, Germany.
  11. Itzhak Gilboa & David Schmeidler, 1991. "Updating Ambiguous Beliefs," Discussion Papers 924, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Daniel Ellsberg, 2000. "Risk, Ambiguity and the Savage Axioms," Levine's Working Paper Archive 7605, David K. Levine.
  13. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
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