Strategies under strategic uncertainty
No 18-055, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research
I investigate the decision problem of a player in a game of incomplete information who faces uncertainty about the other players' strategies. I propose a new decision criterion which works in two steps. First, I assume common knowledge of rationality and eliminate all strategies which are not rationalizable. Second, I apply the maximin expected utility criterion. Using this decision criterion, one can derive predictions about outcomes and recommendations for players facing strategic uncertainty. A bidder following this decision criterion in a first-price auction expects all other bidders to bid their highest rationalizable bid given their valuation. As a consequence, the bidder never expects to win against an equal or higher type and resorts to win against lower types with certainty.
Keywords: Auctions; Incomplete Information; Informational Robustness; Rationalizability (search for similar items in EconPapers)
JEL-codes: C72 D81 D82 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:18055
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