Uncertainty and Self-Enforceability in Games

We are willing to contribute to the analysis of dynamic games with complete information, observable actions and ambiguity averse players. The main goal of this paper is to develop a concept of equilibrium which is applicable to this type of games, and which satisfies several important criteria. First and foremost, the players should use forward induction within their strategic reasoning. We assume that players can communicate with each other prior to the game and agree on a particular path. After an agreement is reached, the players proceed to strategic reasoning with strong belief in that the opponent will not deviate from the path. Furthermore, we suppose that players cannot randomize, hence choosing only pure strategies, and hold common belief in that fact. Finally, we want our equilibrium concept to explicitly reflect the process through which the uncertainty off the agreed-upon path can force the players into sticking to this path, making it a self-enforcing equilibrium. Apart from that, we will also demonstrate how our equilibrium concept can be used for studying comparative plausibility of equilibria in a dynamic game. This might be useful for making predictions in the applied game theory.