μ-σ Games

Uwe Dulleck and Andreas Loffler ()

No 78, NCER Working Paper Series from National Centre for Econometric Research

Abstract: Risk aversion in game theory is usually modelled using expected utility, which has been critized early on leading to an extensive literature on generalized expected utility. In this paper we are first to apply μ-σ theory to the analysis of (static) games. μ-σ theory is widely accepted in the finance literature, using it allows us to study the effect on uncertainty endogenous to the game, i.e. mixed equilibria. In particular, we look at the case of linear μ-σ utility functions and determine the best response strategy. In the case of 2x2- and NxM-games we are able to characterize all mixed equilibria.

Pages: 14 pages
Date: 2012-01-13
New Economics Papers: this item is included in nep-gth and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:qut:auncer:2012_1

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