Dominance-solvable lattice games

This paper derives sufficient and necessary conditions for dominance-solvability of so-called lattice games whose strategy sets have a lattice structure while they simultaneously belong to some metric space. The argument combines and extends Moulin's (1984) approach for nice games and Milgrom and Roberts' (1990) approach for supermodular games. The analysis covers - but is not restricted to - the case of actions being strategic complements as well as the case of actions being strategic substitutes. Applications are given for n-firm Cournot oligopolies, auctions with bidders who are optimistic - respectively pessimistic - with respect to an imperfectly known allocation rule, and Two-player Bayesian models of bank runs

Capital Asset Pricing under Ambiguity

Abstract This paper generalizes the standard mean-variance paradigm to a mean-varianceambiguity paradigm by relaxing the assumption that probabilities are known and instead assuming that probabilities are themselves random. It extends the CAPM from risk to uncertainty by incorporating ambiguity. This model makes the distinction between systematic ambiguity and idiosyncratic ambiguity and proves that the ambiguity premium is proportional to systematic ambiguity. It introduces a new measure of uncertainty that combines risk and ambiguity. Use of this model can be extended to other applications including portfolio selection and performance measurement