Optimism and Pessimism in Games

23 Pages Posted: 24 Apr 2014

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

Date Written: May 2014

Abstract

This article considers the impact of ambiguity in strategic situations. It extends the existing literature on games with ambiguity‐averse players by allowing for optimistic responses to ambiguity. We use the CEU model of ambiguity with a class of capacities introduced by Jaffrray and Philippe (Mathematics of Operations Research 22 (1997), 165–85), which allows us to distinguish ambiguity from ambiguity‐attitude, and propose a new solution concept, equilibrium under ambiguity (EUA), for players who may be characterized by ambiguity‐preference. Applying EUA, we study comparative statics of changes in ambiguity‐attitude in games with strategic complements. This extends work in Eichberger and Kelsey (Journal of Economic Theory 106 (2002), 436–66) on the effects of increasing ambiguity if players are ambiguity averse.

Suggested Citation

Eichberger, Jürgen and Kelsey, David, Optimism and Pessimism in Games (May 2014). International Economic Review, Vol. 55, Issue 2, pp. 483-505, 2014. Available at SSRN: https://ssrn.com/abstract=2428504 or http://dx.doi.org/10.1111/iere.12058

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/

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