David Kelsey

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

Abstract We examine the effect of ambiguity in symmetric games with aggregate externalities. We find that ambiguity will increase/decrease the equilibrium strategy in games with strategic complements/substitutes and positive externalities. These effects are reversed in games with negative externalities. We consider some economic applications of these results to Cournot oligopoly, bargaining, macroeconomic coordination, and voluntary donations to a public good. In particular we show that ambiguity may reduce free-riding. Comparative statics analysis shows that increases in uncertainty will increase donations, to a public good. Journal of Economic Literature C72, D81, H41.

Uncertainty Aversion and Dynamic Consistency

This paper applies a proposal of M. Machina (1989) for updating nonexpected utility preferences to D. Schmeidlers (1989) nonadditive probability model. The authors discover that the updated preferences may not themselves satisfy Schmeidlers axioms. Despite this, the updates of uncertainty averse preferences are themselves uncertainty averse. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Are the treasures of game theory ambiguous

Goeree & Holt (2001) observe that, for some parameter values, Nash equilibrium provides good predictions for actual behaviour in experiments. For other payoff parameters, however, actual behaviour deviates consistently from that predicted by Nash equilibria. They attribute the robust deviations from Nash equilibrium to actual players’ considering not only marginal gains and losses but also total pay-offs. In this paper, we show that optimistic and pessimistic attitudes towards strategic ambiguity may induce such behaviour.

The existence of equilibrium in incomplete markets and the objective function of the firm

Abstract We consider an economy in which firms′ decisions are made by a collective decision of the shareholders. The main result shows the simultaneous existence of an exchange equilibrium in the market for shares and a voting equilibrium in the internal decisions of firms. We present our results in a general framework, with a measure space of agents. Our model covers the cases of incomplete markets and externalities between firms and shareholders. We show that a voting rule due to Kramer is a special case.

The α-MEU model: A comment

In [7] Ghirardato, Macheroni and Marinacci (GMM) propose a method for distinguishing between perceived ambiguity and the decision-makers reaction to it. They study a general class of preferences which they refer to as invariant biseparable. This class includes CEU and MEU. They axiomatize a subclass of a-MEU preferences. If attention is restricted to finite state spaces, we show that any a-MEU preference relation, satisfies GMMs axioms if and only if a = 0 or 1, that is, the preferences must be either maxmin or maxmax. We show by example that these axioms may be satisfied when the state space is [0,1].

CEU preferences and dynamic consistency

This paper investigates the dynamic consistency of CEU preferences. A decision maker is faced with an information structure represented by a fixed filtration. If beliefs are represented by a convex capacity, we show that a necessary and sufficient condition for dynamic consistency is that beliefs be additive over the final stage in the filtration.

Optimism and Pessimism in Games

This article considers the impact of ambiguity in strategic situations. It extends the existing literature on games with ambiguity‐averse players by allowing for optimistic responses to ambiguity. We use the CEU model of ambiguity with a class of capacities introduced by Jaffrray and Philippe (Mathematics of Operations Research 22 (1997), 165–85), which allows us to distinguish ambiguity from ambiguity‐attitude, and propose a new solution concept, equilibrium under ambiguity (EUA), for players who may be characterized by ambiguity‐preference. Applying EUA, we study comparative statics of changes in ambiguity‐attitude in games with strategic complements. This extends work in Eichberger and Kelsey (Journal of Economic Theory 106 (2002), 436–66) on the effects of increasing ambiguity if players are ambiguity averse.

On constructing a generalized ostrogorski paradox: Necessary and sufficient conditions

Abstract A conflict between the outcomes of direct and representative democracies is known as the ‘Ostrogorski Paradox’. The paper provides necessary and sufficient conditions for the occurrence of such Ostrogorski Phenomena and compares such paradoxes with the Condorcet paradox.

Acyclic Choice without the Pareto Principle

In this paper we prove some versions of the Arrow Impossibility Theorem, with the collective rationality condition weakened from transitivity to acyclicity, and the Pareto condition replaced by weaker conditions. Thus this result has weaker assumptions than versions of the Arrow Theorem which have previously appeared in the literature. Consequently it is one of the strongest impossibility theorems. Our result is an extension of a recent theorem of Blair and Pollak.

Acyclic Choice and Group Veto

The Arrow Impossibility Theorem assumes transitivity. Acyclicity is a more appropriate rationality condition for collective decision procedures. Many impossibility theorems for acyclic choice need to assume that there are more alternatives than individuals. In this paper we show that by considering circumstances under which groups (or coalitions) have veto it is possible to prove impossiblity theorems without making such an assumption. Our results extend recent theorems by Blau and Deb, and Blair and Pollak.