Robustness to Strategic Uncertainty (Replaced by DP 2010-98)

Ola Andersson, Cédric Argenton and Jörgen W. Weibull

No 2010-70, Discussion Paper from Tilburg University, Center for Economic Research

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.

JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-com, nep-evo, nep-gth and nep-hpe
Date: 2010
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Persistent link: http://EconPapers.repec.org/RePEc:dgr:kubcen:201070

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