Unawareness, Beliefs and Games

Aviad Heifetz, Martin Meier and Burkhard Schipper

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized “No-trade†theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the “No-agreeing-to-disagree†theorem.

Keywords: unawareness; awareness; type-space; Bayesian games; incomplete information; equilibrium; common prior; agreement; speculative trade; interactive epistemology (search for similar items in EconPapers)
JEL-codes: C70 C72 D80 D82 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Unawareness, Beliefs and Games (2007)
Working Paper: Unawareness, Beliefs and Games (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:196

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