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The Texas Shoot-Out under Knightian uncertainty

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  • Bauch, Gerrit
  • Riedel, Frank

Abstract

We investigate a widely used mechanism to resolve disputes among business partners, known as Texas Shoot-Out, under Knightian uncertainty. For a non-degenerate range of intermediate valuations, an ambiguity-averse divider truthfully reveals their valuation in equilibrium. As a consequence, the resulting outcome is efficient, in contrast to the Bayesian case. With equal shares, both agents prefer ex-ante to be the chooser and would like to avoid triggering the mechanism in the first place.

Suggested Citation

  • Bauch, Gerrit & Riedel, Frank, 2024. "The Texas Shoot-Out under Knightian uncertainty," Games and Economic Behavior, Elsevier, vol. 146(C), pages 35-50.
    • Handle: RePEc:eee:gamebe:v:146:y:2024:i:c:p:35-50
    DOI: 10.1016/j.geb.2024.04.009
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    More about this item

    Keywords

    Knightian uncertainty in games; Texas Shoot-Out; Partnership dissolution;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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