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Robustness to strategic uncertainty

Ola Andersson, Cédric Argenton and Jörgen Weibull

Games and Economic Behavior, 2014, vol. 85, issue C, 272-288

Abstract: We introduce a criterion for robustness to strategic uncertainty in games with continuum strategy sets. We model a player's uncertainty about another player's strategy as an atomless probability distribution over that player's strategy set. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in which every player's strategy is optimal under his or her uncertainty about the others. When payoff functions are continuous we show that our criterion is a refinement of Nash equilibrium and we also give sufficient conditions for existence of a robust strategy profile. In addition, we apply the criterion to Bertrand games with convex costs, a class of games with discontinuous payoff functions and a continuum of Nash equilibria. We show that it then selects a unique Nash equilibrium, in agreement with some recent experimental findings.

Keywords: Nash equilibrium; Refinement; Strategic uncertainty; Bertrand competition; Log-concavity (search for similar items in EconPapers)
JEL-codes: C72 D43 L13 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Robustness to Strategic Uncertainty (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:85:y:2014:i:c:p:272-288

DOI: 10.1016/j.geb.2014.01.018

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