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Working paper ECPAP-95-02
Kin Chung Lo, "Equilibrium in Beliefs Under Uncertainty", 1995-03-11
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Abstract: Existing equilibrium concepts for games make use of the subjective expected utility model axiomatized by Savage (1954) to represent players' preferences. Accordingly, each player's beliefs about the strategies played by opponents are represented by a probability measure. Motivated by experimental findings such as the Ellsberg Paradox demonstrating that the beliefs of a decision maker may not be representable by a probability measure, this paper generalizes equilibrium concepts for normal form games to allow for the beliefs of each player to be representable by a closed and convex set of probability measures. The implications of this generalization for the strategy choices and welfare of players are studied.

Keywords: uncertainty, Ellsberg Paradox, multiple priors, Nash Equilibrium, equilibrium in beliefs

JEL Classification: C72;D81