Ambiguity in Multi-Stage Games: Uncertainty about the Opponent's Strategic Behaviour

Juergen Eichberger (), Simon Grant and David Kelsey
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Juergen Eichberger: Universitat Heidelberg
Simon Grant: Australian National University
David Kelsey: University of Nottingham

No 2026-07, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: We propose Consistent-Planning Equilibrium under Ambiguity (CP-EUA), a solution concept for two-player multi-stage games with almost perfect information. Players evaluate continuation payoffs using a neo-additive representation centred on a behavioural-strategy theory of the opponent. The additive component is identified with the opponent’s behavioural strategy, while the ambiguity component captures the player’s lack of confidence in that theory. The lack-of-confidence parameter is revised by Generalized Bayesian Updating (GBU). Players take account of possible changes in their future ambiguity-sensitive evaluations by using consistent planning. We show that, in the centipede game, ambiguity about the opponent’s strategic behaviour together with sufficient optimism can sustain cooperation for many periods. Similarly, in a non-cooperative bargaining game, ambiguity and optimism may generate delay before agreement is reached.

Keywords: optimism; neo-additive beliefs; extensive-form games; dynamic consistency; consistent planning; centipede game; bargaining (search for similar items in EconPapers)
Date: 2026-07
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