Strategies under strategic uncertainty


Mass, Helene


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URL: https://madoc.bib.uni-mannheim.de/49181
URN: urn:nbn:de:bsz:180-madoc-491818
Document Type: Working paper
Year of publication: 2018
The title of a journal, publication series: ZEW Discussion Papers
Volume: 18-055
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C72 , D81 , D82 , D83,
Keywords (English): Auctions , incomplete information , informational robustness , rationalizability
Abstract: 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.

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Mass, Helene (2018) Strategies under strategic uncertainty. Open Access ZEW Discussion Papers Mannheim 18-055 [Working paper]
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