The Strategic Use of Ambiguity

21 Pages Posted: 8 Sep 2013

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

Ambiguity can be used as a strategic device in some situations. To demonstrate this, we propose and study a framework for normal form games where players can use Knightian uncertainty strategically. In such Ellsberg games, players may use Ellsberg urns in addition to the standard objective mixed strategies. We assume that players are ambiguity{averse in the sense of Gilboa and Schmeidler. While classical Nash equilibria remain equilibria in the new game, there arise new Ellsberg equilibria that can be quite different from Nash equilibria. A negotiation game with three players illustrates this finding. Another class of examples shows the use of ambiguity in mediation.

We also highlight some conceptually interesting properties of Ellsberg equilibria in two person games with conflicting interests.

Suggested Citation

Riedel, Frank and Sass, Linda, The Strategic Use of Ambiguity (August 2, 2011). Institute of Mathematical Economics Working Paper No. 452, Available at SSRN: https://ssrn.com/abstract=2321957 or http://dx.doi.org/10.2139/ssrn.2321957

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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