Heifetz, Aviad Meier, Martin Schipper, Burkhard C.
Year of Publication:
Bonn econ discussion papers 2007,6
We define a generalized state-space model with interactive unawareness and probabilistic beliefs. Such models are desirable for many potential applications of asymmetric unawareness. We develop Bayesian games with unawareness, define equilibrium, and prove existence. We show how equilibria are extended naturally from lower to higher awareness levels and restricted from higher to lower awareness levels. We use our unawareness belief structure to show that the common prior assumption is too weak to rule out speculative trade in all states. Yet, we prove a generalized ?No-trade? theorem according to which there can not be common certainty of strict preference to trade. Moreover, we show a generalization of the ?No-agreeing-to-disagree? theorem.
unawareness awareness type-space Bayesian games incomplete information equilibrium common prior agreement speculative trade