Abstract
We study incomplete information games with ambiguity averse players. Our focus is on equilibrium concepts satisfying sequential optimality-each player's strategy is optimal at each information set given opponents' strategies. We show sequential optimality, which does not make any explicit assumption on updating, is equivalent to sequential optimality with respect to beliefs updated using a particular generalization of Bayesian updating. Ambiguity aversion expands the set of equilibria compatible with players sharing common ambiguous beliefs. We connect ambiguity aversion with belief robustness. Examples illustrate new strategic behavior, including strategic use of ambiguity, under ambiguity aversion.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 135-187 |
| Number of pages | 53 |
| Journal | American Economic Journal: Microeconomics |
| Volume | 12 |
| Issue number | 2 |
| DOIs | |
| State | Published - Apr 1 2020 |
Funding
* Hanany: Faculty of Engineering, Tel Aviv University, Tel Aviv 69978, Israel (email: [email protected]); Klibanoff: Department of Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, Evanston, IL 60208 (email: [email protected]); Mukerji: School of Economics and Finance, Queen Mary University of London, London E1 4NS, United Kingdom (email: s.mukerji@ qmul.ac.uk). John Asker was coeditor for this article. We thank Itzhak Gilboa, Frederic Koessler, Fabio Maccheroni, Ludovic Renou, Jean-Marc Tallon, and participants at various conferences and seminars. Klibanoff and Mukerji additionally thank the Robust Finance research group at the ZiF, Bielefeld University for helpful comments and hospitality during their time as visiting fellows in Spring/Summer 2015. This research was partially supported by grant No. 2014350 from the United States-Israel Binational Science Foundation (BSF), Jerusalem, Israel to Hanany and Klibanoff.
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)