17 Oct
14:00
Strategic uncertainty in games
Strategic uncertainty is the uncertainty that people face with respect to the purposeful behavior of others in interactive situations. Previous literature measures strategic uncertainty by varying the source of uncertainty. We suggest that strategic uncertainty varies not only between strategic and non-strategic decisions but also that different games are associated with varying degrees of strategic uncertainty. We use the expected volatility of probabilities as a measurement of strategic uncertainty. Our experimental design manipulates strategic uncertainty by changing the payoff structure of a 2x2 strategic game with incomplete information. Our manipulation changes the expected volatility of probability assigned to either action. However, it does not change the equilibrium actions or equilibrium payoffs. We elicit participants' action choices and preferences with respect to the varying degrees of strategic uncertainty in a series of binary choices. Our results show that participants exhibit strategic uncertainty aversion.