Minimax regret and strategic uncertainty |
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Authors: | Ludovic Renou Karl H. Schlag |
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Affiliation: | a Department of Economics, University of Leicester, University Road, Leicester LE1 7RH, United Kingdom b Department of Economics and Business, Universitat Pompeu Fabra, Spain |
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Abstract: | This paper introduces a new solution concept, a minimax regret equilibrium, which allows for the possibility that players are uncertain about the rationality and conjectures of their opponents. We provide several applications of our concept. In particular, we consider price-setting environments and show that optimal pricing policy follows a non-degenerate distribution. The induced price dispersion is consistent with experimental and empirical observations (Baye and Morgan (2004) [4]). |
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Keywords: | C72 |
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