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Robustness to strategic uncertainty
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.).
2014 (English)In: Games and Economic Behavior, ISSN 0899-8256, E-ISSN 1090-2473, Vol. 85, no 1, 272-288 p.Article in journal (Refereed) Published
Abstract [en]

We introduce a criterion for robustness to strategic uncertainty in games with continuum strategy sets. We model a player's uncertainty about another player's strategy as an atomless probability distribution over that player's strategy set. We call a strategy profile robust to strategic uncertainty if it is the limit, as uncertainty vanishes, of some sequence of strategy profiles in which every player's strategy is optimal under his or her uncertainty about the others. When payoff functions are continuous we show that our criterion is a refinement of Nash equilibrium and we also give sufficient conditions for existence of a robust strategy profile. In addition, we apply the criterion to Bertrand games with convex costs, a class of games with discontinuous payoff functions and a continuum of Nash equilibria. We show that it then selects a unique Nash equilibrium, in agreement with some recent experimental findings.

Place, publisher, year, edition, pages
2014. Vol. 85, no 1, 272-288 p.
Keyword [en]
Nash equilibrium, Refinement, Strategic uncertainty, Bertrand competition, Log-concavity
National Category
Economics and Business Other Mathematics
URN: urn:nbn:se:kth:diva-146559DOI: 10.1016/j.geb.2014.01.018ISI: 000335616100017ScopusID: 2-s2.0-84896307620OAI: diva2:724366

QC 20140612

Available from: 2014-06-12 Created: 2014-06-12 Last updated: 2014-06-12Bibliographically approved

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Weibull, Jörgen W.
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