hero working papers

Ambiguity Attitudes and Self-confirming Equilibrium in Sequential Games

Number: 607
Year: 2017
Author(s): P. Battigalli, E. Catonini, G. Lanzani, and M. Marinacci
We consider a game with sequential moves played by agents who are randomly drawn from large populations and matched. We assume that, when players are uncertain about the strategy distributions of the opponents, preferences over actions at any information set admit a smooth-ambiguity representation in the sense of Klibanoff, Marinacci, and Mukerji (Econometrica, 2005). This may induce dynamically inconsis- tent preferences and calls for an appropriate definition of sequential best response. We take this into account in our analysis of self-confirming equilibrium (SCE) and rationalizable SCE in sequential games with feedback played by agents with non-neutral ambiguity attitudes. Battigalli, Cerreia-Vioglio, Maccheroni, and Marinacci (Amer. Econ. Rev., 2015) show that the set of SCE's of a simultaneous-move game with feedback expands as ambiguity aversion increases. We show by example that SCE in a sequential game is not equivalent to SCE applied to the strategic form of such game, and that the previous monotonicity result does not extend to general sequential games. Still, we provide sufficient conditions under which the monotonicity result holds for (rationalizable) SCE.

Keywords: Sequential games with feedback, smooth ambiguity, self-confirming equilibrium, rationalizable self-confirming equilibrium