AmbiDyn Ambiguity in Dynamic Environments

• Applicants: Professor Dr. Sujoy Mukerji; Professor Dr. Frank Riedel; Professor Dr. Jean-Marc Tallon
• Subject Area: Economic Theory
• Term: from 2018 to 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 396833577

• Final Report Year: 2023

Final Report Abstract

Uncertainty plays a fundamental role in financial markets and strategic conflicts. In many real-world situations, it is not possible to model uncertainty by means of well-defined probability distributions. Instead, participants face Knightian uncertainty: they do not know the exact probability distribution over possible outcomes. In view of this, it is important to incorporate such Knightian uncertainty or ambiguity into the analysis of markets and strategic conflicts. This project aimed to clarify the foundations for ambiguity in financial markets and strategic interactions. The project involved the four countries Germany, United Kingdom, France, and Japan. We jointly carried out fundamental research on uncertainty in (dynamic) economies, with a particular focus on financial markets on the one hand and dynamic stategic interactions (games) on the other hand. The project led to various important insights into the nature of Knightian uncertainty. Major contributions characterize efficient risk (and uncertainty) sharing rules in identified models. These results have potential applications in the design of (future) insurance products involving, e.g., climate change damages. Moreover, the project has led to important insights on dynamic consistency in strategic interactions under Knightian, applications of Knightian uncertainty in important allocation mechanisms like auctions, and into the nature of partnership dissolutions.

Publications

• A complete folk theorem for finitely repeated games. International Journal of Game Theory, 49(4), 1129-1142.
  Demeze-Jouatsa, Ghislain-Herman
  
• Ambiguous Social Choice Functions, IMW Working Paper 660, 2021
  Ghislain-Herman Demeze-Jouatsa
  
• Effects of Noise on the Grammar of Languages, IMW Working Paper 655, 2021
  Gerrit Bauch
  
• Dynamic consistency in incomplete information games with multiple priors. Games and Economic Behavior, 133, 85-108.
  Pahlke, Marieke
  
• Efficient Allocations under Ambiguous Model Uncertainty, IMW Working Paper 669, 2022
  Chiaki Hara, Sujoy Mukerji, Frank Riedel & Jean-Marc Tallon
  
• Farsighted Rationality in Hedonic Games. Dynamic Games and Applications, 13(2), 462-479.
  Demeze-Jouatsa, G.-Herman & Karos, Dominik
  
• Dynamic Consistency in Ambiguous Dutch Auctions. SSRN Electronic Journal.
  Pahlke, Marieke
  
• The Texas Shoot-Out under Knightian Uncertainty, IMW Working Paper 664, 2022, revise and resubmit at Games and Economic Behavior, 2023
  Gerrit Bauch & Frank Riedel