The strategic use of ambiguity

Frank Riedel and Linda Sass
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Linda Sass: Center for Mathematical Economics, Bielefeld University

No 452, Center for Mathematical Economics Working Papers from Center for Mathematical Economics, Bielefeld University

Abstract: Ambiguity can be used as a strategic device in some situations. To demonstrate this, we propose and study a framework for normal form games where players can use Knightian uncertainty strategically. In such Ellsberg games, players may use Ellsberg urns in addition to the standard objective mixed strategies. We assume that players are ambiguity-averse in the sense of Gilboa and Schmeidler. While classical Nash equilibria remain equilibria in the new game, there arise new Ellsberg equilibria that can be quite different from Nash equilibria. A negotiation game with three players illustrates this finding. Another class of examples shows the use of ambiguity in mediation. We also highlight some conceptually interesting properties of Ellsberg equilibria in two person games with conflicting interests.

Pages: 21
Date: 2016-02-11
New Economics Papers: this item is included in nep-evo, nep-gth, nep-hpe and nep-mic
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Citations: View citations in EconPapers (3)

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