Uncertainty aversion and rationality in games of perfect information

This paper shows how uncertainty aversion can resolve ties in extensive games of perfect information, and thereby re"ne subgame-perfection in such games. This is done by assuming that (a) players are rational with multi-prior expected utility functions of Gilboa and Schmeidler (1989), (Journal of Economic Theory 48, 221}237); and (b) a player's plan of the game corresponds to set-valued acts at each of his decision nodes, the so-called strategy system, in contrast to single-valued act as speci"ed in the traditional notion of strategy pro"le. The e!ects of pre-communication channels among players are studied, and are re#ected in each of the three proposed solutions. Finally, existence of equilibria are established for each proposed solution concept as well as comparisons with other existing solutions. ( 2000 Elsevier Science B.V. All rights