Minimax regret and strategic uncertainty

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...

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Published in:Journal of economic theory 2010, Vol.145 (1), p.264-286
Main Authors: Renou, Ludovic, Schlag, Karl H.
Format: Article
Language:English
Subjects:
Agency
Auction
Conjectures
Economic theory
Equilibrium
Game theory
Minimax regret
Minimax regret Rationality Conjectures Price dispersion Auction
Price dispersion
Price formation
Pricing policies
Rationality
Strategic behaviour
Studies
Uncertainty
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description 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]).
doi_str_mv 10.1016/j.jet.2009.07.005
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source International Bibliography of the Social Sciences (IBSS); ScienceDirect Freedom Collection
subjects Agency
Auction
Conjectures
Economic theory
Equilibrium
Game theory
Minimax regret
Minimax regret Rationality Conjectures Price dispersion Auction
Price dispersion
Price formation
Pricing policies
Rationality
Strategic behaviour
Studies
Uncertainty
title Minimax regret and strategic uncertainty
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