Strategic Uncertainty and Probabilistic Sophistication

Masaki Aoyagi, Takehito Masuda and Naoko Nishimura

ISER Discussion Paper from Institute of Social and Economic Research, The University of Osaka

Abstract: This paper uses novel laboratory experiments to study subjects’ assessment of uncertainty resulting from action choice in Stag-Hunt and Prisoners’ Dilemma games played by other subjects in an earlier session. We examine if the subjects’ matching probabilities satisfy monotonicity, which requires that the probability weight placed on the action choice of a single player to be at least as large as the weight placed on the corresponding action profile. We find that a substantial fraction of subjects violate monotonicity for the coordination profiles of the games. The result contrasts sharply with their matching probabilities of non-strategic uncertainty created by other subjects in the form of Ellsberg urns, and suggests that they perceive strategic uncertainty created by a pair of players to come from a different source from that created by a single player

Date: 2021-02, Revised 2025-03
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Related works:
Working Paper: Strategic Uncertainty and Probabilistic Sophistication (2021)
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