A strategic product for belief functions
ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics
The term “belief function” is generally used to refer to a class of capacities that can be viewed as representing ambiguity averse preferences. This paper introduces a definition of equilibrium for normal-form games with ambiguous beliefs, where belief functions are used to describe strategic uncertainty. To capture independence of strategies and beliefs, a novel notion of a “strategic product integral” is introduced for belief functions, based on the Möbius transform of a capacity, and shown to be different from the Choquet integral of an appropriate product capacity. A characterization of the integral in terms of maxmin expected utility expressed relative to elements of the cores of the respective belief functions, is also presented. The resulting equilibrium notion relies on the Möbius transform to embed objectively chosen probabilistic mixed strategies into ambiguous beliefs of opponents about these strategies, while incorporating stronger consistency requirements than those imposed by previous definitions of equilibria under ambiguity.
Keywords: Belief functions; Product capacities; Equilibrium under ambiguity; Strategic uncertainty (search for similar items in EconPapers)
JEL-codes: C72 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2019-668
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