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Minimax regret and strategic uncertainty

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  • Ludovic Renou
  • Karl Schlag

Abstract

This paper introduces a new solution concept, a minimax regret equilibrium, which allows for the possibility that players are uncertain about the rationality and conjectures of their opponents. We provide several applications of our concept. In particular, we consider pricesetting environments and show that optimal pricing policy follows a non-degenerate distribution. The induced price dispersion is consistent with experimental and empirical observations (Baye and Morgan (2004)).

Suggested Citation

  • Ludovic Renou & Karl Schlag, 2008. "Minimax regret and strategic uncertainty," Economics Working Papers 1087, Department of Economics and Business, Universitat Pompeu Fabra.
    • Handle: RePEc:upf:upfgen:1087
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    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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