Contests with ambiguity

Abstract

The paper examines contests where players perceive ambiguity about their opponents' strategies and determine how perceptions of ambiguity and attitudes to ambiguity affect equilibrium choice. Behaviour in our contest is affected by pessimistic and optimistic traits. Which of these traits dominates determines the relationship between the equilibrium under ambiguity and behaviour where contenders have expected utility preferences. Our model can explain experimental results such as overbidding and overspreading relative to Nash predictions.