Paper #1630

Títol:

Strategic cautiousness as an expression of robustness to ambiguity

Autors:

Gabriel Ziegler i Peio Zuazo-Garin

Data:

Gener 2019

Resum:

Economic predictions often hinge on two intuitive premises: agents rule out the possibility of others choosing unreasonable strategies (�strategic reasoning�), and prefer strategies that hedge against unexpected behavior (�cautiousness�). These two premises conflict and this undermines the compatibility of usual economic predictions with reasoning-based foundations. This paper proposes a new take on this classical tension by interpreting cautiousness as robustness to ambiguity. We formalize this via a model of incomplete preferences, where (i) each player�s strategic uncertainty is represented by a possibly non-singleton set of beliefs and (ii) a rational player chooses a strategy that is a best-reply to every belief in this set. We show that the interplay between these two features precludes the conflict between strategic reasoning and cautiousness and therefore solves the inclusion-exclusion problem raised by Samuelson (1992). Notably, our approach provides a simple foundation for the iterated elimination of weakly dominated strategies

Paraules clau:

Game theory, decision theory, ambiguity, Knightian uncertainty, incomplete preferences, Bayesian rationality, cautiousness, iterated admissibility

Codis JEL:

C72, D82

Àrea de Recerca:

Microeconomia

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