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Games in context: Equilibrium under ambiguity for belief functions

Adam Dominiak and Jürgen Eichberger

Games and Economic Behavior, 2021, vol. 128, issue C, 125-159

Abstract: We propose a new solution concept, called Context-Dependent Equilibrium Under Ambiguity (CD-EUA), for strategic games where players' beliefs may be influenced by exogenous context-related information. Players' beliefs about the strategic behavior of their opponents are represented by belief functions. The notion of belief functions allows us to combine exogenous context information in the spirit of Schelling (1960) with endogenous equilibrium beliefs about the opponents' behavior in analogy to the standard Nash equilibrium. For any finite strategic game, we prove existence of a CD-EUA for any context information and any degree of confidence in it. Moreover, we show continuity of the equilibrium correspondence. Finally, we illustrate how CD-EUA can be applied to different types of context information in games by explaining some stylized facts from experimental research on coordination.

Keywords: Strategic games; Context information; Non-additive beliefs; Belief functions; Choquet expected utility; Equilibrium under ambiguity; Optimism and pessimism (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.geb.2021.04.002

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