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Ambiguity and Social Interaction

  • Eichberger, Jürgen

    ()

    (Sonderforschungsbereich 504)

  • Kelsey, David

    ()

    (Department of Economics, The University of Birmingham)

  • Schipper, Burkhard

    ()

    (University of California, Davis Department of Economics)

We examine the impact of ambiguity on economic behaviour. We present a relatively non-technical account of ambiguity and show how it may be applied in economics. Optimistic and pessimistic responses to ambiguity are formally modelled. We show that pessimism has the effect of increasing (decreasing) equilibrium prices under Cournot (Bertrand) competition. We also examine the effects of ambiguity on peace processes. It is shown that ambiguity can act to select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.

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File URL: http://www.sfb504.uni-mannheim.de/publications/dp03-30.pdf
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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 03-30.

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Length: 45 pages
Date of creation: 14 Oct 2003
Date of revision:
Handle: RePEc:xrs:sfbmaa:03-30
Note: Research in part supported by ESRC grant no. R000222597. We would like to acknowledge helpful comments on an earlier version of this paper from seminar participants at the Australian National University, the Universities of Alabama, Birmingham, Berlin (Humboldt) and from participants of the meeting of the Royal Economic Society and the European Economic Association. Special thanks go to Sujoy Mukerji who instigated our interest in this topic and to Jeffrey Kline who pointed out a mistake in an earlier version of the paper. We would also like to thank Simon Grant, Wei Pang, Marzia Raybaudi-Massilia, Peter Sinclair and Willy Spanjers for their comments. The usual disclaimer applies.
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