Self-Confirming Equilibrium and Model Uncertainty

Pierpaolo Battigalli (), Simone Cerreia-Vioglio, Fabio Maccheroni and Massimo Marinacci

American Economic Review, 2015, vol. 105, issue 2, 646-77

Abstract: We analyze a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: by playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of "status quo bias" emerges; in the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not. (JEL C72, C73, D81, D83)

JEL-codes: C72 C73 D81 D83 (search for similar items in EconPapers)
Date: 2015
Note: DOI: 10.1257/aer.20130930
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Citations: View citations in EconPapers (64)

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Working Paper: Selfconfirming Equilibrium and Model Uncertainty (2012)
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