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Unawareness, Beliefs and Games

Author

Listed:
  • Heifetz, Aviad
  • Meier, Martin
  • Schipper, Burkhard C.

Abstract

We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized “No-trade†theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the “No-agreeing-to-disagree†theorem.

Suggested Citation

  • Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2007. "Unawareness, Beliefs and Games," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 196, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:196
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    File URL: https://epub.ub.uni-muenchen.de/13356/1/196.pdf
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    References listed on IDEAS

    as
    1. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
    2. Eddie Dekel & Barton L. Lipman & Aldo Rustichini, 1998. "Standard State-Space Models Preclude Unawareness," Econometrica, Econometric Society, vol. 66(1), pages 159-174, January.
    3. Burkhard C. Schipper & Aviad Heifetz & Martin Meier, 2007. "Unawareness, Beliefs and Games," Working Papers 73, University of California, Davis, Department of Economics.
    4. Heifetz, Aviad, 2006. "The positive foundation of the common prior assumption," Games and Economic Behavior, Elsevier, vol. 56(1), pages 105-120, July.
    5. Burkhard C. Schipper & Aviad Heifetz & Martin Meier, 2007. "Unawareness, Beliefs and Games," Working Papers 73, University of California, Davis, Department of Economics.
    6. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Heinsalu, Sander, 2014. "Universal type structures with unawareness," Games and Economic Behavior, Elsevier, vol. 83(C), pages 255-266.
    2. Blume, Andreas & Gneezy, Uri, 2010. "Cognitive forward induction and coordination without common knowledge: An experimental study," Games and Economic Behavior, Elsevier, vol. 68(2), pages 488-511, March.
    3. Feinberg, Yossi, 2012. "Games with Unawareness," Research Papers 2122, Stanford University, Graduate School of Business.
    4. Spyros Galanis, 2011. "Syntactic foundations for unawareness of theorems," Theory and Decision, Springer, vol. 71(4), pages 593-614, October.
    5. repec:pit:wpaper:378 is not listed on IDEAS
    6. Burkhard C. Schipper & Aviad Heifetz & Martin Meier, 2007. "Unawareness, Beliefs and Games," Working Papers 73, University of California, Davis, Department of Economics.
    7. Burkhard C. Schipper & Aviad Heifetz & Martin Meier, 2007. "Unawareness, Beliefs and Games," Working Papers 73, University of California, Davis, Department of Economics.
    8. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2008. "A canonical model for interactive unawareness," Games and Economic Behavior, Elsevier, vol. 62(1), pages 304-324, January.
    9. Filiz-Ozbay, Emel, 2012. "Incorporating unawareness into contract theory," Games and Economic Behavior, Elsevier, vol. 76(1), pages 181-194.
    10. repec:pit:wpaper:346 is not listed on IDEAS
    11. Salvatore Modica, 2008. "Unawareness, priors and posteriors," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 31(2), pages 81-94, November.
    12. Halpern, Joseph Y. & Pass, Rafael, 2015. "Algorithmic rationality: Game theory with costly computation," Journal of Economic Theory, Elsevier, vol. 156(C), pages 246-268.

    More about this item

    Keywords

    unawareness; awareness; type-space; Bayesian games; incomplete information; equilibrium; common prior; agreement; speculative trade; interactive epistemology;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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