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on Microeconomics |
| By: | Florian Brandl; Felix Brandt |
| Abstract: | Equilibrium play in two-player zero-sum games is usually justified via epistemic assumptions, such as mutual knowledge of rationality and beliefs, that go far beyond the rationality of the players. We propose a justification that dispenses with these assumptions. To this end, we consider solution concepts that assign to every subgame of a given game a set of plausible actions for each player, and we impose two conditions. Rationality requires that the plausible sets are supports of undominated strategies or, equivalently, that all plausible actions are best responses to a common belief about the opponent. Inheritance requires that plausible actions remain plausible when implausible actions are discarded. In two-player games, the two conditions characterize the solution concepts that consistently select supports of Nash equilibria. Zero-sum payoffs ensure that Nash equilibria -- and hence the selection -- are generically unique. Equilibrium play thus emerges from individual rationality and the mutual understanding that plausibility judgments persist when implausible actions are discarded. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.17968 |
| By: | Battaglini, Marco; Palfrey, Thomas R |
| Abstract: | We study the volunteer’s dilemma in environments with heterogeneous preferences and private information. We characterize the efficiency properties of equilibrium, which is a departure from all the previous literature that focuses only on the probability of group success. While the probability of success may be non-monotonic in the size of the group, we show that per-capita welfare is always increasing for all types, strictly for sufficiently high types. As group size increases, the expected utility of every type converges to the expected utility of the type with the lowest possible cost, which is the same expected utility when there is no free rider problem, i.e., when there is only a single player in the game and that player has the lowest possible cost. |
| JEL: | D71 D72 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19544 |
| By: | Gambato, Jacopo; Peitz, Martin |
| Abstract: | We analyze consumers' voluntary information disclosure in a platform setting. For given consumer participation, the platform and sellers tend to prefer limited disclosure of consumer valuations, in contrast to consumers. With endogenous consumer participation, seller and platform incentives may be misaligned, and sellers may be better off when consumers can disclose their valuations. A regulator acting in the best interest of consumers and/or sellers may want to intervene and force the platform to employ a disclosure technology that enables consumers to voluntarily disclose information from a richer message space. |
| Keywords: | E-commerce |
| JEL: | L12 L15 D21 D42 M37 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19359 |
| By: | Kim, Kyungmin; Kos, Nenad |
| Abstract: | The model considers a monopolist who optimally chooses the design and price of a product on the Hotelling line. We characterize the set of prices and consumer surplus that can arise in the model across all distributions of tastes. In a stark departure from the monopoly model without product design, the seller never offers a price below a certain threshold. Moreover, the maximal consumer surplus is strictly smaller than in the absence of product design. It is attained by a distribution that renders the seller indifferent over a set of design/price combinations. Notably, the distribution does not exhibit unit elasticity given any fixed design. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19630 |
| By: | Jeon, Doh-Shin; Rey, Patrick |
| Abstract: | We study the development of apps on competing platforms. We show that competition leads to commissions exceeding those maximizing consumer surplus (and, a fortiori, social welfare) whenever raising one commission reduces rivals' app bases. We relate this finding to economies of scope in app development and, to illustrate it, consider a setting in which some developers can port their apps at no cost: as their proportion increases, app development is progressively choked-off. Fostering platform competition or interoperability may therefore fail to produce the desired results. Within-platform app store competition, together with appropriate access conditions, may constitute a more promising avenue. |
| Keywords: | Platform competition |
| JEL: | D21 D43 L13 L22 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19456 |
| By: | Qing Hu (Kansai University); Tomomichi Mizuno (Kobe University) |
| Abstract: | While cross-holdings are widely observed, their degree varies across industries. We show that upstream R&D is one possible reason. In a vertically related market with two downstream firms and an upstream firm engaging in cost-reducing R&D, the cross-holding rate is determined through Nash bargaining. The equilibrium rate maximizes downstream joint profit and is always below the merger level. An interior optimum exists only when upstream R&D is sufficiently inefficient, and the rate decreases with R&D efficiency and market size. In the linear-quadratic case, any degree of cross-holdings can arise. Since total surplus falls with cross-holdings, the private optimum is socially excessive, justifying antitrust intervention. |
| Keywords: | Cross-holdingsï¼› vertical structureï¼› R&Dï¼› optimal choice |
| JEL: | L13 D43 O32 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2611 |
| By: | Albrecht, James; Cai, Xiaoming; Gautier, Pieter; Vroman, Susan |
| Abstract: | This paper considers competitive search equilibrium in a market for a good whose quality differs across sellers. Each seller knows the quality of the good that he or she is offering for sale, but buyers cannot observe quality directly. We thus have a “market for lemons†with competitive search frictions. In contrast to Akerlof (1970), we prove the existence of a unique equilibrium, which is separating. Higher-quality sellers post higher prices, so price signals quality. The arrival rate of buyers is lower in submarkets with higher prices, but this is less costly for higher-quality sellers given their higher continuation values. For some parameter values, higher-quality sellers post the full-information price; for other values these sellers have to post a higher price to keep lower-quality sellers from mimicking them. In an extension, we show that if sellers compete with auctions, the reserve price can also act as a signal. |
| Keywords: | Competitive search; Signalling |
| JEL: | C78 D82 D83 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19467 |
| By: | Anh Nguyen; Teck Yong Tan |
| Abstract: | We study a monopolist facing a buyer whose valuation is determined by pre-trade investment. Before setting price, the seller observes a signal about the buyer's private investment cost (buyer profiling). Information that helps the seller extract surplus can also undermine the buyer's incentive to create it. We characterize the buyer-seller payoffs attainable across all possible profiling. On the Pareto frontier, if investment increases, hold-up risk always raises the payoff that the seller captures faster than the surplus that the investment creates. Protecting buyer welfare therefore requires discouraging investment, even though investment is socially efficient. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.19558 |
| By: | Qing Hu (Kansai University); Ryo Masuyama (Kushiro Public University of Economics and Kobe University); Tomomichi Mizuno (Kobe University) |
| Abstract: | This paper examines how bundling affects the welfare comparison between input price discrimination (IPD) and uniform input pricing (UIP) in a vertical market structure with Cournot competition. A multi-product firm bundles its products across a competitive market and a monopoly market, while an upstream supplier provides inputs only to the competitive market. When the inefficient firm is the bundling firm, IPD can increase total surplus relative to UIP if the monopoly market is sufficiently small. When the efficient firm is the bundling firm, however, IPD always reduces both consumer and total surpluses. |
| Keywords: | input price discriminationï¼› uniform input priceï¼› bundlingï¼› vertical relationship |
| JEL: | D43 L10 L13 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2610 |
| By: | Takeshi Murooka; Yuichi Yamamoto |
| Abstract: | This paper considers Bayesian learning when players are biased about the data-generating process, and are biased about the opponent’s bias about the data-generating process. Specifically, we assume that each player’s bias about others takes the form of interpersonal projection, which is a tendency to overestimate the extent to which others share the player’s own view. We show that there is a class of games in which even an arbitrarily small amount of bias can destroy correct learning of an unknown state, i.e., the probability of the posterior beliefs converging to an approximately correct state suddenly drops to zero. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1284r |
| By: | Ryuichi Hashimoto (Kobe University); Tomomichi Mizuno (Kobe University) |
| Abstract: | This study analyzes the conditions under which failing firm acquisitions arise endogenously and examines their welfare effects. We consider a vertical market structure in which an upstream firm supplies a common input to multiple independent downstream markets. We show that acquiring a failing downstream firm preserves input demand in the market, and when the demand in that market is relatively elastic, it results in a lower input price. This input price effect gives rival firms an incentive to acquire a failing firm even in the absence of efficiency gains or direct synergies. We further demonstrate that failing firm acquisitions can increase both consumer surplus and total surplus by maintaining the supply of final goods and reducing input prices. These findings remain robust when the upstream market is oligopolistic and suggest that competition authorities should account for upstream market effects when evaluating the failing firm defense. |
| Keywords: | horizontal mergerï¼› failing firm defenseï¼› vertical relationshipï¼› input prices upstream market power |
| JEL: | D43 L10 L13 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2612 |
| By: | Teck Yong Tan |
| Abstract: | A monopolist sells a product line whose variants are horizontally differentiated from the buyers' perspective but ordered by production cost. Buyers privately know their ideal product, and willingness to pay may be correlated with horizontal need. The seller screens buyers through product mismatch, and what she must screen determines whether mismatch creates or reduces information rent. When buyers differ only in horizontal need, mismatch creates rent: the seller induces less mismatch, assigning served buyers products closer to their ideals than under the first best. When willingness to pay is correlated with horizontal need, mismatch instead reduces rent: the seller induces more mismatch, sells the basic product to buyers whose efficient products are advanced variants while excluding buyers better matched to it, and stronger horizontal differentiation can expand coverage and raise profit. Because mismatch is type-specific, optimal allocations are determined by individual rationality rather than by incentive compatibility alone. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.21765 |
| By: | Penta, Antonio; Ollar, Mariann |
| Abstract: | We study a framework for robust mechanism design that can accommodate various degrees of robustness with respect to agents’ beliefs, and which includes both the belief-free and Bayesian settings as special cases. For general belief restrictions, we characterize the set of incentive compatible direct mechanisms in general environments with interdependent values. The necessary conditions that we identify, based on a first-order approach, provide a unified view of several known results, as well as novel ones, including a robust version of the revenue equivalence theorem that holds under a notion of generalized independence that also applies to non-Bayesian settings. Our main characterizations inform the design of belief-based terms, in pursuit of various objectives in mechanism design, including attaining incentive compatibility in environments that violate standard single-crossing and monotonicity conditions. We discuss several implications of these results. For instance, we show that, under weak conditions on the belief restrictions, any allocation rule can be implemented, but full rent extraction need not follow. Information rents are generally possible, and they decrease monotonically as the robustness requirements are weakened. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19482 |
| By: | Hiroaki Odahara (Market Design Center, Graduate School of Economics, The University of Tokyo; Graduate School of Informatics and Engineering, The University of Electro-Communications) |
| Abstract: | This paper asks whether the payment side of an incentive-compatible mechanism can be repaired so that every realized settlement balances exactly while the allocation and all report-by-report comparisons under the maintained worst-case evaluation remain unchanged. Before reports, the designer commits to a menu of payment rules and a report-blind selection protocol. A pointwise preservation condition then carries over dominant-strategy incentives. Under a full-support common reference, a precisely known label law permits repair only if the original rule already balances, whereas frequency uncertainty about even one non-worst label makes every non-deficit rule repairable. Under the common residual-ambiguity benchmark, every preserving, exactly balanced finite menu at a positive-surplus state requires more transfer capacity as certified frequency information becomes tighter. In the canonical menu, fixing the transfer cap makes the best attainable balance deteriorate toward the original surplus as ambiguity vanishes. When only the possible labels are certified, two labels suffice. Suitably balanced partitions can also retain the original cap for nonnegative payments and preserve individual rationality under every realized rule. This last guarantee is impossible in positive-revenue Vickrey states when each agent's preserving distribution has full support. Frequency information therefore changes feasibility, liquidity, and realized participation in distinct ways. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.00517 |
| By: | Fershtman, Daniel |
| Abstract: | This paper studies a model of observational learning where a sequence of agents each choose among risky actions (e.g., which technological innovation to adopt), the outcome of which is a function of an unknown state. Agents observe past choices and outcomes, but are short-lived and do not internalize the informational value of their actions. The main result is a “robust wisdom of the crowd†: a characterization of the set of information structures under which agents, without any intervention, all choose the socially optimal action, at any history, for any number of agents, and any prior. |
| Keywords: | Observational learning; Technology adoption |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19616 |
| By: | Bhaskar, Venkataraman; Roketskiy, Nikita |
| Abstract: | We study the steady state behavior of the market for a storable good where firms have monopoly power instantaneously, but compete against future sellers. Consumers have identical preferences, but differ in their willingness to pay due to differential inventory holdings. In a steady state, the optimal nonlinear tariffs chosen by the firms induce the constant distribution of private inventories. Identical consumers behave differently, shop infrequently and consume in a cyclical manner. The ability to store goods gives rise to inefficiency, but also allows consumers to retain some surplus. |
| Keywords: | storable good; dynamic nonlinear pricing |
| JEL: | D11 D21 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19480 |
| By: | Heidhues, Paul; Köster, Mats; Köszegi, Botond |
| Abstract: | We develop a theory of digital ecosystems built on the premise that a multi-market firm can steer users it has in one market toward its products in other markets. Due to this "cross-market leverage, " a leader in an "access-point'' market (where users begin their online journeys) derives a high value from offering services in connected markets (where users continue their journeys), and can thus make profitable takeovers. Indeed, because the firm has the outside option of acquiring, and steering users toward, its target's competitor, it can take over the target at a discount. In contrast, other firms have no or smaller incentives for takeovers, explaining why ecosystems grow out of market leaders at access points. Conversely, cross-market leverage also implies that once an ecosystem has grown, it has an increased value of controlling access points, so it may go to great lengths to dominate these markets. Our theory suggests that ecosystems have mixed implications for consumer welfare. Under plausible assumptions, a to-be ecosystem takes over market leaders, and this consolidation of good services across markets benefits consumers in the short run. But an ecosystem's takeovers and dominance of access points lower incentives for entry and innovation, and lower the efficiency of access-point markets with superior alternatives. Hence, the long-run welfare implications of ecosystems are often negative. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19524 |
| By: | Yi-Hsuan Lin |
| Abstract: | In random expected utility (Gul and Pesendorfer, 2006), the distribution of preferences is uniquely identified from random choice. This paper investigates whether such identification extends beyond expected utility. We first show that when risk preferences conform to the disappointment aversion model of Gul (1991), the distribution of preferences remains uniquely identified. To assess the scope of this result, we then examine other models of non-expected utility. Within the broader class of betweenness preferences (Dekel, 1986), random utility can be unidentifiable. If preferences are confined to the weighted expected utility class (Chew, 1983), a more nuanced picture emerges: unique identification holds in a three-prize setting but fails with four or more prizes. These findings show that the uniqueness property of random expected utility may persist beyond expected utility, but its persistence critically depends on the class of risk preferences under consideration. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.15790 |
| By: | Martimort, David; Pouyet, Jerome |
| Abstract: | A retailer may boost demand for a manufacturer's product through unobservable promotional efforts. Fixed fees cannot be used to freely allocate profit within the vertical structure. When manufacturers have market power, the equilibrium wholesale contract features a retail price below cost together with a rebate for incremental units bought by the retailer when effort has succeeded in boosting sales. Loss leading emerges as an incentive device in such an incomplete contracting scenario. A ban on below-cost pricing leads to a higher retail price and a lower promotional effort. |
| JEL: | L42 L81 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19474 |
| By: | Elliott, Matthew; Talamas, Eduard |
| Abstract: | Agents make non-contractible investments before bargaining over who matches with whom and their terms of trade. When an agent is a price taker—in the sense that her investments do not change her potential partners’ payoffs—she has incentives to make socially-optimal investments. Across a variety of non-cooperative bargaining models featuring dynamic entry, we show that everyone necessarily becomes a price taker as the discount factor goes to 1 if there is a minimal amount of competition always present in the market. If this condition is not satisfied, dynamic entry need not create enough competition to guarantee price taking even if agents are arbitrarily patient. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19568 |
| By: | Lingxiu Dong; Kaiwen Luo; Fasheng Xu |
| Abstract: | Generative AI is shifting digital commerce from browsing toward agentic search, in which consumers delegate product discovery to AI agents. We compare manual search, which accurately evaluates a limited product set, with agentic search, which screens a broad catalog through noisy representations of preferences and products. Preference complexity is the number of satisfaction-relevant dimensions that are difficult to articulate before search but readily evaluated upon inspection. Consumers have finite attention and choose search intensity: products inspected manually or preference-refinement depth with an agent. We obtain three findings. First, manual search collapses beyond a finite complexity threshold: inspection ceases, mismatch reaches the no-search benchmark, and platform revenue falls to zero. Agentic search avoids this collapse. Once refinement becomes worthwhile, it remains worthwhile as complexity rises; mismatch stays below the no-search benchmark and revenue remains positive, although articulation effort and mismatch may increase. Second, platforms rank the regimes by conversion revenue, whereas consumers also bear search expenditure. When manual inspection is sufficiently inexpensive, agentic search becomes revenue-superior before consumers voluntarily adopt it, creating an adoption lag in which consumers rationally continue manual search. Third, conditional on agentic participation, platforms may assign lower fidelity to consumers with larger attention budgets because they can offset noisier representations through additional refinement, yielding an inverted fidelity allocation. Agentic commerce thus shifts scarcity from product inspection to preference articulation, making consumers' willingness and ability to interact central to voluntary use and platform fidelity design. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.08395 |
| By: | Baldwin, Elizabeth; Klemperer, Paul; Lock, Edwin |
| Abstract: | Product-mix auctions are sealed-bid mechanisms for trading multiple divisible or indivisible units of multiple differentiated goods. They implement competitive-equilibrium allocations when these exist, based on the bids that participants make in a simple geometric language. All concave substitutes (respectively, strong-substitutes) valuations can be uniquely represented, and no other valuations can be represented, by bids in the corresponding version of this language. This provides new characterisations of ordinary substitutes, and of strong substitutes, when goods are indivisible. We discuss implementation of the auctions, and extensions and variants of the language, e.g., allowing for budget constraints. |
| Keywords: | Walrasian equilibrium |
| JEL: | D44 E58 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19457 |
| By: | Olivier Gossner; Rafael Veiel |
| Abstract: | We study direct representations of information for interim correlated rationalizability. For a fixed finite payoff structure, each type induces a hierarchy of surviving action sets. Pushing the common prior through this map projects the information structure onto the solution concept's output language. When best-response regions are convex, this representation is direct: the solution concept applied to the hierarchy seen as a type is the identity. The induced distributions are characterized by level-by-level obedience constraints. Terminal ICR sets alone do not have this property. For arbitrary finite payoff structures, we refine each hierarchy level with a tag identifying a convex cell of its best-response region. Augmented hierarchies provide a direct representation and project onto the ordinary hierarchy. Full augmented hierarchies may form a continuum, but retaining only the tags at the boundaries of constant stretches of the ordinary hierarchy yields an exact countable representation with finitely many obedience constraints per type. Finite-type models are dense in terminal rationalizability outcome distributions. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.21851 |
| By: | M. Ali Khan; Arthur Paul Pedersen; Maxwell B. Stinchcombe |
| Abstract: | Research on Nash equilibrium existence for infinite games has grown into a patchwork of technical preconditions and counterexamples. This paper presents a unified program in equilibrium theory by revising the predominant model of mixed strategies based on countable additivity. A game is specified by a nonempty set of players and, for each player, a nonempty action set and a bounded von Neumann-Morgenstern utility function. Every such game is shown to admit a Nash equilibrium in finitely additive mixed strategies. In addition, the equilibrium correspondence for any such game is shown to be nonempty, compact-valued, and upper hemicontinuous, and the same is true for equilibria obtained as limits of finite approximations. Techniques developed in this paper show that infinite games long treated as intractable become amenable to direct equilibrium analysis. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.15452 |
| By: | Qing Hu (Kansai University); Ryo Masuyama (Kushiro Public University of Economics and Kobe University); Tomomichi Mizuno (Kobe University) |
| Abstract: | This study evaluates the desirability of downstream free entry within vertical relationships. We consider a vertical market consisting of an upstream firm with corporate social responsibility (CSR) and downstream firms with free entry. We find that the desirability of entry depends on the degree of upstream CSR. Specifically, when the degree of upstream CSR is sufficiently high, the downstream market faces excess entry, whereas when the degree is low, it faces insufficient entry. When the upstream firm commits to CSR, it lowers the input price, thereby encouraging downstream entry. This study identifies a new factor that justifies the entry regulation policies. |
| Keywords: | free entry; corporate social responsibility; vertical relationship |
| JEL: | D43 L10 L13 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2613 |
| By: | Gurkirat Wadhwa; Veeraruna Kavitha |
| Abstract: | Suppliers often encroach downstream by operating in-house production-units while continuing to supply independent production-units. We study the optimal configuration, including optimal pricing, for an encroaching supplier that balances these dual roles through a Stackelberg game. The integrated supplier determines the wholesale price charged to the outsourced production unit and the retail price of its own product, while the outsourced unit responds optimally. Customer demand-response incorporates both price-based substitutions (of the two production-units) and loyalty (towards individual units). With strong customer loyalty and luxury products, at the optimal choice for the coalition, both units co-exist profitably. In contrast, when the products become essential, the optimal strategy depends upon customer-fallback rates (fraction of the exiting production-unit's market that falls-back to other). Under low fallback, the coalition either sustains co-existence at maximum prices or disciplines the out-house to operate at break-even---with high fallback it is optimal to shut-down the in-house or eliminate the out-house---we derive two factors that identify the above. We further develop a numerical procedure to identify the optimal regime for any given set of parameters. Two surprising results are---higher market potential of the out-house can become a reason for it to operate at break-even---and the coalition may find it beneficial to operate its in-house at losses, particularly for products that are neither highly essential nor in the luxury category. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.22846 |
| By: | Toxvaerd, Flavio |
| Abstract: | In this paper, I revisit and synthesize the rich literature on price formation in bilateral monopoly. I show how traditional flat-rate price posting (e.g. price setting and price taking) is akin to Nash bargaining over wholesale price with subsequent `right-to-manage', while two-part tariffs are akin to bilaterally efficient Nash bargaining over both wholesale price and quantity. Outcomes under the former protocol nest price posting and the cases of pure monopoly and pure monopsony. Outcomes under the latter protocol nest all-or-nothing offers, the Walrasian outcome under two-sided price taking and trace out the contract curve. With lopsided bargaining power, outcomes under right-to-manage can lead to socially superior outcomes to those that are bilaterally efficient, but may also lead to socially inferior over production. Last, effects of bargaining power on markups, markdowns and cost pass-through are characterized. |
| Keywords: | Bilateral monopoly |
| JEL: | L13 L42 D42 C78 J42 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19338 |
| By: | Evan M. Calford |
| Abstract: | This paper introduces ambiguity-dominance as a novel equilibrium selection procedure that, in 2x2 games, unifies risk-dominance and payoffdominance as special cases. Ambiguity-dominance provides an intuitive answer to the question "Which equilibrium is most robust to ambiguous beliefs about the behavior of other players?" and is defined for all finite normal form games. Ambiguity-dominance is parametrized by players' ambiguity preference and, using data from three recent experiments we find, on aggregate, ambiguity loving coupled with substantial subject-level heterogeneity. |
| Keywords: | Equilibrium selection, ambiguity aversion |
| JEL: | C70 D81 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:acb:cbeeco:2026-707 |