Nash Equilibrium under Knightian Uncertainty: Breaking Down Backward Induction

Uncertainty Aversion and Preference for Randomisation

“…(The difference between SEU and CEU individuals would be that the latter would perform randomisation while the former would not. 5 This is not in accord with the actual evidence that individuals systematically discount ambiguous alternatives.…”

“…Dow and Werlang [5] have developed a theory of games with uncertainty where players have CEU preferences. They assumed that players would choose pure strategies rather than randomising.…”

Strategic Complements, Substitutes, and Ambiguity: The Implications for Public Goods

“…4 We deÖne the support of a capacity to be the smallest set of opponentsí strategies with a complement of capacity zero. For discussion of the deÖnition of support, see [13] and [34]. DEFINITION 2.10 The support of capacity  is a set E  S i ; such that  (S i nE) = 0 and  (F ) > 0, for all F such that S i nE $ F .…”

“…In particular, some states only enter into the evaluation if they yield especially bad outcomes. This third category of states can be interpreted as being ìinÖnitely less likelyî than those which are always given positive weight, see [13] and [29]. The deÖnition of support is quite stringent and only includes states which always enter into the evaluation.…”

“…We shall use an equilibrium concept based on that of Dow and Werlang [13], which has been extended in [17]. We assume that players do not randomise but play pure strategies.…”