Ambiguity and Social Interaction
34 Pages Posted: 1 Dec 2003
Date Written: March 30, 2007
We present a non-technical account of ambiguity in strategic games and show how it may be applied to economics and social sciences. 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.
Keywords: Ambiguity, Optimism, Pessimism, Oligopoly, Strategic Delegation, Peace-making, Choquet expected utility
JEL Classification: C72, D43, D62, D81
Suggested Citation: Suggested Citation