Robustness to Strategic Uncertainty

Tilburg University CentER Discussion Paper No. 2010-98 (Revision of 2010-70)

32 Pages Posted: 30 Sep 2010 Last revised: 22 Jul 2011

See all articles by Ola Andersson

Ola Andersson

Research Institute of Industrial Economics (IFN); Uppsala University - Department of Economics

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Jorgen W. Weibull

Stockholm School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Multiple version iconThere are 3 versions of this paper

Date Written: July 1, 2010

Abstract

We model a player’s uncertainty about other players’ strategy choices as smooth probability distributions over their strategy sets. We call a strategy profile (strictly) robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence (all sequences) of strategy profiles, in each of which every player’s strategy is optimal under under his or her uncertainty about the others. We derive general properties of such robustness, and apply the definition to Bertrand competition games and the Nash demand game, games that admit infinitely many Nash equilibria. We show that our robustness criterion selects a unique Nash equilibrium in the Bertrand games, and that this agrees with recent experimental findings.

Keywords: Nash Equilibrium, Refinement, Strategic Uncertainty, Price Competition

JEL Classification: C72, D43, L13

Suggested Citation

Andersson, Ola and Argenton, Cédric and Weibull, Jorgen W., Robustness to Strategic Uncertainty (July 1, 2010). Tilburg University CentER Discussion Paper No. 2010-98 (Revision of 2010-70), Available at SSRN: https://ssrn.com/abstract=1684561 or http://dx.doi.org/10.2139/ssrn.1684561

Ola Andersson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
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HOME PAGE: http://www.ifn.se/medarbetare/forskare/ola-andersson

Uppsala University - Department of Economics ( email )

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Uppsala, 751 20
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Cédric Argenton (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

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Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
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Jorgen W. Weibull

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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