Trembles in extensive games with ambiguity averse players

Abstract

We introduce and analyze three denitions of equilibrium for nite extensive games with imperfect information and ambiguity averse players. In a setting where players’ preferences are represented by maxmin expected utility, as characterized in Gilboa and Schmeidler (1989), our denitions capture the intuition that players may consider the possibility of slight arbitrary mistakes. This generalizes the idea leading to trembling-hand perfect equilibrium as introduced in Selten (1975), by allowing for ambiguous trembles characterized by sets of distributions. We prove existence for two of our equilibrium notions, and relate our denitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to behavioral implications that are distinct from those attained under expected utility maximization, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies.