Ambiguity and Social Interaction

Posted: 27 Mar 2009

See all articles by Jürgen Eichberger

Jürgen Eichberger

Heidelberg University - Alfred Weber Institute for Economics

David Kelsey

University of Exeter Business School - Department of Economics

Burkhard C. Schipper

University of California, Davis - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2009

Abstract

A decision-maker is said to have an ambiguous belief if it is not precise enough to be represented by a single probability distribution. The pervasive assumption in game theoretic models in economics is that players' beliefs are unambiguous. This paper argues, drawing on examples from economics and politics, that it may be illuminating, in instances, to model players as having ambiguous beliefs. 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. In addition the effects of ambiguity on peace-making are examined. It is shown that ambiguity may select equilibria in coordination games with multiple equilibria. Some comparative statics results are derived for the impact of ambiguity in games with strategic complements.

JEL Classification: C72, D43, D62, D81

Suggested Citation

Eichberger, Jürgen and Kelsey, David and Schipper, Burkhard C., Ambiguity and Social Interaction (April 2009). Oxford Economic Papers, Vol. 61, Issue 2, pp. 355-379, 2009. Available at SSRN: https://ssrn.com/abstract=1369070 or http://dx.doi.org/gpn030

Jürgen Eichberger (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Heidelberg, D-69117
Germany

David Kelsey

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, Devon EX4 4PU
United Kingdom
013 9226 2536 (Phone)

HOME PAGE: http://people.exeter.ac.uk/dk210/

Burkhard C. Schipper

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
530-752-6142 (Phone)
530-752-9382 (Fax)

HOME PAGE: http://www.econ.ucdavis.edu/faculty/schipper/

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