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Ambiguity and the Centipede Game: Strategic Uncertainty in Multi-Stage Games

Jürgen Eichberger, Simon Grant () and David Kelsey
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Jürgen Eichberger: Alfred Weber Institut, Universität Heidelberg.

No 1705, Discussion Papers from University of Exeter, Department of Economics

Abstract: We propose a solution concept for a class of extensive form games with ambiguity. Speci?cally we consider multi-stage games. Players have CEU preferences. The associated ambiguous beliefs are revised by Generalized Bayesian Updating. We assume individuals take account of possible changes in their preferences by using consistent planning. We show that if there is ambiguity in the centipede game it is possible to sustain ?cooperation? for many periods as part of a consistent-planning equilibrium under ambiguity. In a non-cooperative bargaining game we show that ambiguity may be a cause of delay in bargaining.

Keywords: optimism; neo-additive capacity; dynamic consistency; consistent planning; centipede game; multi-stage game. (search for similar items in EconPapers)
JEL-codes: D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp, nep-gth, nep-hpe, nep-mic and nep-upt
Date: 2017
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