Uncertainty Aversion and Equilibrium Existence in Games with Incomplete Information
18 Pages Posted: 24 Jun 2008 Last revised: 10 Oct 2009
Date Written: September 29, 2009
We consider games with incomplete information a la Harsanyi, where the payoff of a player depends on an unknown state of nature as well as on the profile of chosen actions. As opposed to the standard model, players' preferences over state--contingent utility vectors are represented by arbitrary functionals. The definitions of Nash and Bayes equilibria naturally extend to this generalized setting. We characterize equilibrium existence in terms of the preferences of the participating players. It turns out that, given continuity and monotonicity of the preferences, equilibrium exists in every game if and only if all players are averse to uncertainty (i.e., all the functionals are quasi--concave). We further show that if the functionals are either homogeneous or translation invariant then equilibrium existence is equivalent to concavity of the functionals.
Keywords: Games with incomplete information, equilibrium existence, uncertainty aversion, convex preferences
JEL Classification: D81, C72
Suggested Citation: Suggested Citation