Self-confirming equilibrium and model uncertainty

The paper analyzes a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: By playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of "status quo bias" emerges: In the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not