Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111063
Authors: 
Hellmann, Tobias
Thijssen, Jacco J. J.
Year of Publication: 
2015
Series/Report no.: 
Working Papers, Center for Mathematical Economics 533
Abstract: 
In this paper we study a two-player investment game with a first mover advantage in continuous time with stochastic payoffs, driven by a geometric Brownian motion. One of the players is assumed to be ambiguous with maxmin preferences over a strongly rectangular set of priors. We develop a strategy and equilibrium concept allowing for ambiguity and show that equilibira can be preemptive (a player invests at a point where investment is Pareto dominated by waiting) or sequential (one player invests as if she were the exogenously appointed leader). Following the standard literature, the worst case prior for the ambiguous player if she is the second mover is obtained by setting the lowest possible trend in the set of priors. However, if the ambiguous player is the first mover, then the worst case prior can be given by either the lowest or the highest trend in the set of priors. This novel result shows that "worst case prior" in a setting with geometric Brownian motion and kappa-ambiguity does not equate to "lowest trend".
Subjects: 
Real Options
Knightian Uncertainty
Worst Case Prior
Optimal Stopping
Timing Game
JEL: 
C61
C73
D81
L13
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
343.65 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.