The Strategic Use of Ambiguity

38 Pages Posted: 3 Aug 2011 Last revised: 29 May 2012

See all articles by Frank Riedel

Frank Riedel

Bielefeld University - Center for Mathematical Economics

Linda Sass

Bielefeld University

Multiple version iconThere are 3 versions of this paper

Date Written: August 2, 2011

Abstract

We propose a framework for normal form games where players can use Knightian uncertainty strategically. In such Ellsberg games, ambiguity–averse players may render their actions objectively ambiguous by using devices such as Ellsberg urns, in addition to the standard mixed strategies. While Nash equilibria remain equilibria in the extended game, there arise new Ellsberg equilibria with distinct outcomes, as we illustrate by negotiation games with three players. We characterize Ellsberg equilibria in two–person games with conflicting interests. These equilibria turn out to be consistent with experimental deviations from Nash equilibrium play.

Keywords: Strategic Ambiguity, Knightian Uncertainty in Games, Ellsberg Game

JEL Classification: C72

Suggested Citation

Riedel, Frank and Sass, Linda, The Strategic Use of Ambiguity (August 2, 2011). Available at SSRN: https://ssrn.com/abstract=1904399 or http://dx.doi.org/10.2139/ssrn.1904399

Frank Riedel (Contact Author)

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

Linda Sass

Bielefeld University ( email )

Universitätsstraße 25
Bielefeld, NRW 33613
Germany

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