Robustness to Strategic Uncertainty (Revision of DP 2010-70)

O. Andersson, C. Argenton, J. Weibull

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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. For the Nash demand game, we show that the less uncertain party obtains the bigger share.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages32
Volume2010-98
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-98

Keywords

  • Nash equilibrium
  • refinement
  • strategic uncertainty
  • price competition
  • Bertrand competition
  • bargaining
  • Nash demand game

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