The paper analyzes a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: By playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of "status quo bias" emerges: In the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not.
Self-confirming equilibrium and model uncertainty
BATTIGALLI, PIERPAOLO;CERREIA VIOGLIO, SIMONE;MACCHERONI, FABIO ANGELO;MARINACCI, MASSIMO
2015
Abstract
The paper analyzes a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: By playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of "status quo bias" emerges: In the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not.File | Dimensione | Formato | |
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