Are the Treasures of Game Theory Ambiguous?

Abstract

Goeree and Holt (2001) experimentally study a number of games. In each case they initially find strong support for Nash equilibrium, however by changing an apparently irrelevant parameter they find results which contradict Nash equilibrium. In this paper, we study the five normal form games from Goeree and Holt (2001). We argue that their results may be explained by the hypothesis that subjects view their opponents' behaviour as ambiguous. Ambiguity-aversion causes players to avoid strategies which give low out of equilibrium pay-offs. Similarly ambiguity-preference can make strategies with high pay-offs more attractive.

Keywords: ambiguity, coordination games, experiments, traveller's dilemma, matching pennies, optimism

JEL Classification: C72, D81