We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game.... more We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game. We study the behaviour of subjects in the presence of ambiguity and attempt to determine whether they prefer to choose an ambiguity safe option. We …nd that this strategy, which is not played in either Nash equilibrium or iterated dominance equilibrium, is indeed chosen quite frequently. This provides evidence that ambiguity aversion in ‡uences behaviour in games. While the behaviour of the Row Player is consistent with randomising between her strategies, the Column Player shows a marked preference for avoiding ambiguity and choosing his ambiguity-safe strategy.
and from participants of the meeting of the Royal Economic Society and the European Economic Asso... more and from participants of the meeting of the Royal Economic Society and the European Economic Association. Special thanks go to Sujoy Mukerji who instigated our interest in this topic and to Jeffrey Kline who pointed out a mistake in an earlier version of the paper. We would also like to thank Simon Grant, Wei Pang, Marzia Raybaudi-Massilia, Peter Sinclair and Willy Spanjers for their comments. The usual disclaimer applies.
We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
Ellsberg's (1961) famous paradox shows that decision-makers give events with 'known' probabilitie... more Ellsberg's (1961) famous paradox shows that decision-makers give events with 'known' probabilities a higher weight in their outcome evaluation. In the same article, Ellsberg suggests a preference representation which has intuitive appeal but lacks an axiomatic foundation. Schmeidler (1989) and Gilboa (1987) provide an axiomatisation for expected utility with non-additive probabilities. This paper introduces E-capacities as a representation of beliefs which incorporates objective information about the probability of events. It can be shown that the Choquet integral of an E-capacity is the Ellsberg representation. The paper further explores properties of this representation of beliefs and provides an axiomatisation for them.
Goeree and Holt (2001) experimentally study a number of games. In each case they initially …nd st... more Goeree and Holt (2001) experimentally study a number of games. In each case they initially …nd strong support for Nash equilibrium, however by changing an apparently irrelevant parameter they …nd results which contradict Nash equilibrium. In this paper, we study the …ve normal form games from Goeree and Holt (2001). We argue that their results may be explained by the hypothesis that subjects view their opponents' behaviour as ambiguous. Ambiguity-aversion causes players to avoid strategies which give low out of equilibrium pay-o¤s. Similarly ambiguity-preference can make strategies with high pay-o¤s more attractive.
We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
Karni and Vierø (2013) propose a model of belief revision under growing awarenessreverse Bayesian... more Karni and Vierø (2013) propose a model of belief revision under growing awarenessreverse Bayesianism-which posits that as a person becomes aware of new acts, consequences, or act-consequence links, she revises her beliefs over an expanded state space in a way that preserves the relative likelihoods of events in the original state space. A key limitation of the model is that reverse Bayesianism alone does not fully determine the revised probability distribution. We provide an assumption-act independencethat imposes additional restrictions on reverse Bayesian belief revision. We show that under act independence, knowledge of the probabilities of new events in the expanded state space is su¢ cient to fully determine the revised probability distribution in each case of growing awareness. We thereby operationalize the reverse Bayesian model for applications. To illustrate how act independence operationalizes reverse Bayesianism, we consider the law and economics problem of optimal safety regulation. JEL codes: D83, K23.
Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts o... more Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts or consequences or to perceive as feasible all conceivable act-consequence links. We study the implications of unawareness for tort law, where relevant examples include the discovery of a new product or technology (new act), of a new disease or injury (new consequence), or that a product can cause an injury (new link). We argue that negligence has an important advantage over strict liability in a world with unawareness-negligence, through the stipulation of due care standards, spreads awareness about the updated probability of harm.
This paper studies the impact of ambiguity in the best shot and weakest link models of public goo... more This paper studies the impact of ambiguity in the best shot and weakest link models of public good provision. The models are …rst analysed theoretically. Then we conduct experiments to study how ambiguity a¤ects behaviour in these games. We test whether subjects'perception of ambiguity di¤ers between a local opponent and a foreign one. We …nd that an ambiguity safe strategy, is often chosen by subjects. This is compatible with the hypothesis that ambiguity aversion in ‡uences behaviour in games. Subjects tend to choose contributions above (resp. below) the Nash equilibrium in the Best Shot (resp. Weakest Link) model.
We conducted a set of experiments to compare the e¤ect of ambiguity in single person decisions an... more We conducted a set of experiments to compare the e¤ect of ambiguity in single person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We …nd that ambiguity has the opposite e¤ect in games of strategic substitutes and complements. This con…rms a theoretical prediction made by Eichberger and Kelsey (2002). In addition, we note that subjects' ambiguityattitudes appear to be context dependent: ambiguity-loving in single person decisions and ambiguity-averse in games. This is consistent with the …ndings of Kelsey and le Roux (2015).
We investigate how people coordinate within their own cultures, compared to interactions with peo... more We investigate how people coordinate within their own cultures, compared to interactions with people from different cultures. As players are likely to experience more ambiguity when playing a different culture, we expect players to choose safer strategies. We run experiments with a stag hunt and bargaining coordination game. Using a between-subjects design, we vary the identity of the opponent between someone of the same culture or a different culture. We compare the responses of British and East Asian students at the University of Exeter and show the cultural identity of the opponent by physical appearance. The players appear to use cultural stereotypes to predict behaviour, especially in the bargaining game which may require more strategic thought than the stag hunt game. In particular, the British act as though East Asians would behave more cautiously than other British. According to our results, the stereotype of East Asians being cautious is misleading.
ABSTRACT This paper reports experiments conducted to test whether ambiguity affects individual be... more ABSTRACT This paper reports experiments conducted to test whether ambiguity affects individual behaviour in games of strategic complements and strategic substitutes. We study subject behaviour in the presence of ambiguity in order to ascertain whether subjects' perception of ambiguity differs between a local opponent and a foreign one. We find that an ambiguity safe strategy, which is not chosen in a Nash equilibrium, is often chosen by subjects. This gives a strong indication that ambiguity aversion influences subject behaviour in games.
The paper studies the impact of informational ambiguity on behalf of informed traders on history-... more The paper studies the impact of informational ambiguity on behalf of informed traders on history-dependent price behaviour in a model of sequential trading in …nancial markets. Following Chateauneuf, Eichberger and Grant (2006), we use neo-additive capacities to model ambiguity. Such ambiguity and attitudes to it can engender herd and contrarian behaviour, and also cause the market to break down. The latter, herd and contrarian behaviour, can be reduced by the existence of a bid-ask spread.
We conducted a set of experiments to compare the effect of ambiguity in single person decisions a... more We conducted a set of experiments to compare the effect of ambiguity in single person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We find that ambiguity has the opposite effect in games of strategic substitutes and complements. This confirms a theoretical prediction made by Eichberger and Kelsey (2002). The experiments also test whether subjects'perception of ambiguity differs when faced by a local opponent as opposed to a foreign one. Our results show that there is little evidence of more influence of ambiguity on behaviour when faced by foreign subjects.
We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game.... more We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game. We study the behaviour of subjects in the presence of ambiguity and attempt to determine whether they prefer to choose an ambiguity safe option. We …nd that this strategy, which is not played in either Nash equilibrium or iterated dominance equilibrium, is indeed chosen quite frequently. This provides evidence that ambiguity aversion in ‡uences behaviour in games. While the behaviour of the Row Player is consistent with randomising between her strategies, the Column Player shows a marked preference for avoiding ambiguity and choosing his ambiguity-safe strategy.
We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game.... more We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game. We study the behaviour of subjects in the presence of ambiguity and attempt to determine whether they prefer to choose an ambiguity safe option. We …nd that this strategy, which is not played in either Nash equilibrium or iterated dominance equilibrium, is indeed chosen quite frequently. This provides evidence that ambiguity aversion in ‡uences behaviour in games. While the behaviour of the Row Player is consistent with randomising between her strategies, the Column Player shows a marked preference for avoiding ambiguity and choosing his ambiguity-safe strategy.
and from participants of the meeting of the Royal Economic Society and the European Economic Asso... more and from participants of the meeting of the Royal Economic Society and the European Economic Association. Special thanks go to Sujoy Mukerji who instigated our interest in this topic and to Jeffrey Kline who pointed out a mistake in an earlier version of the paper. We would also like to thank Simon Grant, Wei Pang, Marzia Raybaudi-Massilia, Peter Sinclair and Willy Spanjers for their comments. The usual disclaimer applies.
We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
Ellsberg's (1961) famous paradox shows that decision-makers give events with 'known' probabilitie... more Ellsberg's (1961) famous paradox shows that decision-makers give events with 'known' probabilities a higher weight in their outcome evaluation. In the same article, Ellsberg suggests a preference representation which has intuitive appeal but lacks an axiomatic foundation. Schmeidler (1989) and Gilboa (1987) provide an axiomatisation for expected utility with non-additive probabilities. This paper introduces E-capacities as a representation of beliefs which incorporates objective information about the probability of events. It can be shown that the Choquet integral of an E-capacity is the Ellsberg representation. The paper further explores properties of this representation of beliefs and provides an axiomatisation for them.
Goeree and Holt (2001) experimentally study a number of games. In each case they initially …nd st... more Goeree and Holt (2001) experimentally study a number of games. In each case they initially …nd strong support for Nash equilibrium, however by changing an apparently irrelevant parameter they …nd results which contradict Nash equilibrium. In this paper, we study the …ve normal form games from Goeree and Holt (2001). We argue that their results may be explained by the hypothesis that subjects view their opponents' behaviour as ambiguous. Ambiguity-aversion causes players to avoid strategies which give low out of equilibrium pay-o¤s. Similarly ambiguity-preference can make strategies with high pay-o¤s more attractive.
We report on an experiment in which subjects choose actions in strategic games with either strate... more We report on an experiment in which subjects choose actions in strategic games with either strategic complements or substitutes against a granny, a game theorist or other subjects. The games are selected in order to test predictions on the comparative statics of equilibrium with respect to changes in strategic ambiguity. We find that subjects face higher ambiguity while playing against the granny than playing against the game theorist if we assume that subjects are ambiguity averse. Moreover, under the same assumption, subjects choose more secure actions in games more prone to ambiguity which is in line with the predictions.
Karni and Vierø (2013) propose a model of belief revision under growing awarenessreverse Bayesian... more Karni and Vierø (2013) propose a model of belief revision under growing awarenessreverse Bayesianism-which posits that as a person becomes aware of new acts, consequences, or act-consequence links, she revises her beliefs over an expanded state space in a way that preserves the relative likelihoods of events in the original state space. A key limitation of the model is that reverse Bayesianism alone does not fully determine the revised probability distribution. We provide an assumption-act independencethat imposes additional restrictions on reverse Bayesian belief revision. We show that under act independence, knowledge of the probabilities of new events in the expanded state space is su¢ cient to fully determine the revised probability distribution in each case of growing awareness. We thereby operationalize the reverse Bayesian model for applications. To illustrate how act independence operationalizes reverse Bayesianism, we consider the law and economics problem of optimal safety regulation. JEL codes: D83, K23.
Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts o... more Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts or consequences or to perceive as feasible all conceivable act-consequence links. We study the implications of unawareness for tort law, where relevant examples include the discovery of a new product or technology (new act), of a new disease or injury (new consequence), or that a product can cause an injury (new link). We argue that negligence has an important advantage over strict liability in a world with unawareness-negligence, through the stipulation of due care standards, spreads awareness about the updated probability of harm.
This paper studies the impact of ambiguity in the best shot and weakest link models of public goo... more This paper studies the impact of ambiguity in the best shot and weakest link models of public good provision. The models are …rst analysed theoretically. Then we conduct experiments to study how ambiguity a¤ects behaviour in these games. We test whether subjects'perception of ambiguity di¤ers between a local opponent and a foreign one. We …nd that an ambiguity safe strategy, is often chosen by subjects. This is compatible with the hypothesis that ambiguity aversion in ‡uences behaviour in games. Subjects tend to choose contributions above (resp. below) the Nash equilibrium in the Best Shot (resp. Weakest Link) model.
We conducted a set of experiments to compare the e¤ect of ambiguity in single person decisions an... more We conducted a set of experiments to compare the e¤ect of ambiguity in single person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We …nd that ambiguity has the opposite e¤ect in games of strategic substitutes and complements. This con…rms a theoretical prediction made by Eichberger and Kelsey (2002). In addition, we note that subjects' ambiguityattitudes appear to be context dependent: ambiguity-loving in single person decisions and ambiguity-averse in games. This is consistent with the …ndings of Kelsey and le Roux (2015).
We investigate how people coordinate within their own cultures, compared to interactions with peo... more We investigate how people coordinate within their own cultures, compared to interactions with people from different cultures. As players are likely to experience more ambiguity when playing a different culture, we expect players to choose safer strategies. We run experiments with a stag hunt and bargaining coordination game. Using a between-subjects design, we vary the identity of the opponent between someone of the same culture or a different culture. We compare the responses of British and East Asian students at the University of Exeter and show the cultural identity of the opponent by physical appearance. The players appear to use cultural stereotypes to predict behaviour, especially in the bargaining game which may require more strategic thought than the stag hunt game. In particular, the British act as though East Asians would behave more cautiously than other British. According to our results, the stereotype of East Asians being cautious is misleading.
ABSTRACT This paper reports experiments conducted to test whether ambiguity affects individual be... more ABSTRACT This paper reports experiments conducted to test whether ambiguity affects individual behaviour in games of strategic complements and strategic substitutes. We study subject behaviour in the presence of ambiguity in order to ascertain whether subjects' perception of ambiguity differs between a local opponent and a foreign one. We find that an ambiguity safe strategy, which is not chosen in a Nash equilibrium, is often chosen by subjects. This gives a strong indication that ambiguity aversion influences subject behaviour in games.
The paper studies the impact of informational ambiguity on behalf of informed traders on history-... more The paper studies the impact of informational ambiguity on behalf of informed traders on history-dependent price behaviour in a model of sequential trading in …nancial markets. Following Chateauneuf, Eichberger and Grant (2006), we use neo-additive capacities to model ambiguity. Such ambiguity and attitudes to it can engender herd and contrarian behaviour, and also cause the market to break down. The latter, herd and contrarian behaviour, can be reduced by the existence of a bid-ask spread.
We conducted a set of experiments to compare the effect of ambiguity in single person decisions a... more We conducted a set of experiments to compare the effect of ambiguity in single person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We find that ambiguity has the opposite effect in games of strategic substitutes and complements. This confirms a theoretical prediction made by Eichberger and Kelsey (2002). The experiments also test whether subjects'perception of ambiguity differs when faced by a local opponent as opposed to a foreign one. Our results show that there is little evidence of more influence of ambiguity on behaviour when faced by foreign subjects.
We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game.... more We report an experimental test of the in ‡uence of ambiguity on behaviour in a coordination game. We study the behaviour of subjects in the presence of ambiguity and attempt to determine whether they prefer to choose an ambiguity safe option. We …nd that this strategy, which is not played in either Nash equilibrium or iterated dominance equilibrium, is indeed chosen quite frequently. This provides evidence that ambiguity aversion in ‡uences behaviour in games. While the behaviour of the Row Player is consistent with randomising between her strategies, the Column Player shows a marked preference for avoiding ambiguity and choosing his ambiguity-safe strategy.
Karni and Vierø (2013) propose a model of belief revision under growing awareness-reverse Bayesia... more Karni and Vierø (2013) propose a model of belief revision under growing awareness-reverse Bayesianism-which posits that as a person becomes aware of new acts, consequences , or act-consequence links, she revises her beliefs over an expanded state space in a way that preserves the relative likelihoods of events in the original state space. A key limitation of the model is that reverse Bayesianism alone does not fully determine the revised probability distribution. We provide an assumption-act independence-that imposes additional restrictions on reverse Bayesian belief revision. We show that under act independence, knowledge of the probabilities of new events in the expanded state space is su¢ cient to fully determine the revised probability distribution in each case of growing awareness. We thereby operationalize the reverse Bayesian model for applications. To illustrate how act independence operationalizes reverse Bayesianism, we consider the law and economics problem of optimal safety regulation. JEL codes: D83, K23.
We test dynamic consistency and consequentialism, two key principles of dynamic decision making u... more We test dynamic consistency and consequentialism, two key principles of dynamic decision making under ambiguity and relate violations of these principles to subjects' ambiguity attitudes. In our experiment, subjects received a signal which made it attractive for ambiguity averse subjects to deviate from their ex-ante contingent plan and violate dynamic consistency. We found that ambiguity averse subjects were indeed more likely to violate dynamic consistency than ambiguity neutral subjects, but not con-sequentialism.
We propose a solution concept, consistent-planning equilibrium under ambiguity (CP-EUA), for two-... more We propose a solution concept, consistent-planning equilibrium under ambiguity (CP-EUA), for two-player multi-stage games with almost perfect information. Players are neo-expected payo¤ maximizers. The associated (ambiguous) beliefs are revised by Generalized Bayesian Updating. Individuals take account of possible changes in their preferences by using consistent planning. We show that if there is ambiguity in the centipede game and players are su¢ ciently optimistic then it is possible to sustain 'cooperation'for many periods. Similarly, in a non-cooperative bargaining game we show that there may be delay in agreement being reached.
Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts o... more Unawareness is a form of bounded rationality where a person fails to conceive all feasible acts or consequences or to perceive as feasible all conceivable act-consequence links. We study the implications of unawareness for tort law, where relevant examples include the discovery of a new product or technology (new act), of a new disease or injury (new consequence), or that a product can cause an injury (new link). We argue that negligence has an important advantage over strict liability in a world with unawareness-negligence, through the stipulation of due care standards, spreads awareness about the updated probability of harm.
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Papers by David Kelsey