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Assessing strategic risk

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  • AUMANN, Robert J.
  • DREZE, Jacques H.

Abstract

In recent decades, subjective probabilities have been increasingly applied to an adversary's choices in strategic games (SGs). In games against nature (GANs), the subjective probability of a state can be elicited from lotteries yielding utility 1 if that state obtains, 0 otherwise. But in SGs, making such a lottery available changes the game, and so the players' incentives. Here, we propose a definition of subjective probabilities in SGs that uses actually available strategies only. The definition applies also to GANs where the decision maker's options are restricted. The probabilities that emerge need not be unique, but expected utilities are unique. (JEL D81)
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Suggested Citation

  • AUMANN, Robert J. & DREZE, Jacques H., 2009. "Assessing strategic risk," LIDAM Reprints CORE 2089, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2089
    DOI: 10.1257/mic.1.1.1
    Note: In : American Economic Journal: Microeconomics, 1(1), 1-16, 2009
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    References listed on IDEAS

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    Cited by:

    1. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2009. "Measuring Strategic Uncertainty in Coordination Games," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 181-221.
    2. Jacques Dreze, 2012. "Nested identification of subjective probabilities," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 3(1), pages 259-271, March.
    3. Grant, Simon & Meneghel, Idione & Tourky, Rabee, 2013. "Savage Games: A Theory of Strategic Interaction with Purely Subjective Uncertainty," Risk and Sustainable Management Group Working Papers 151501, University of Queensland, School of Economics.
    4. Charles S. Tapiero, 2006. "Book Review: "A Game Theory of Analysis of Options: Corporate Finance and Financial Intermediation in Continuous Time", Alexandre Ziegler," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 521-523.
    5. Guilhem Lecouteux, 2018. "Bayesian game theorists and non-Bayesian players," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 25(6), pages 1420-1454, November.
    6. Eskil Ullberg, 2010. "The Problem of Trading Patents in Organized Markets: A Dynamic Experimental Microeconomic System Model and Informal Price Theory," Working Papers 1016, George Mason University, Interdisciplinary Center for Economic Science.
    7. Lauren Larrouy & Guilhem Lecouteux, 2018. "Choosing in a Large World: The Role of Focal Points as a Mindshaping Device," Working Papers halshs-01923244, HAL.
    8. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," ICBBR Working Papers 16, International Centre for Behavioural Business Research.
    9. Guilhem Lecouteux, 2018. "What does “we” want? Team Reasoning, Game Theory, and Unselfish Behaviours," Revue d'économie politique, Dalloz, vol. 128(3), pages 311-332.
    10. Lehrer, Ehud & Teper, Roee, 2011. "Justifiable preferences," Journal of Economic Theory, Elsevier, vol. 146(2), pages 762-774, March.
    11. Ullberg, Eskil, 2015. "Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff," Ratio Working Papers 261, The Ratio Institute.
    12. Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," Discussion Papers 2011-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    13. Grant, Simon & Meneghel, Idione & Tourky, Rabee, 2016. "Savage games," Theoretical Economics, Econometric Society, vol. 11(2), May.
    14. Li, Chen & Turmunkh, Uyanga & Wakker, Peter P., 2020. "Social and strategic ambiguity versus betrayal aversion," Games and Economic Behavior, Elsevier, vol. 123(C), pages 272-287.
    15. Dekel, Eddie & Siniscalchi, Marciano, 2015. "Epistemic Game Theory," Handbook of Game Theory with Economic Applications,, Elsevier.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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