Uncertainty, Decision, and Normal Form Games

This paper o®ers a new equilibrium concept for nite normal form games motivated by the idea that players may have preferences which display uncertainty aversion. More speci cally, it adopts the representation of preferences presented in Gilboa and Schmeidler (1989). Then an equilibrium with uncertainty aversion is de ned and applied to a number of simple games. This equilibrium concept generalizes both Nash equilibrium and maxmin play. One interesting feature of the equilibrium is that it provides a new justi cation for some mixed strategy equilibria based on objecti cation. It also admits a natural channel through which some unmodelled aspects of the game can in°uence the analyst's choice of equilibrium. A re nement of equilibrium with uncertainty aversion incorporating the notion of common knowledge of rationality is introduced. The notion of weak admissibility is discussed and incorporated into the solution concept. Journal of Economic Literature Classi cation Numbers: C72, D81.

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