[2302.07621] Ambiguous Contracts
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Computer Science > Computer Science and Game Theory

arXiv:2302.07621 (cs)
[Submitted on 15 Feb 2023 (v1), last revised 16 Sep 2024 (this version, v5)]

Title:Ambiguous Contracts

Authors:Paul Dütting, Michal Feldman, Daniel Peretz, Larry Samuelson
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Abstract:We explore the deliberate infusion of ambiguity into the design of contracts. We show that when the agent is ambiguity-averse and hence chooses an action that maximizes their minimum utility, the principal can strictly gain from using an ambiguous contract, and this gain can be arbitrarily high. We characterize the structure of optimal ambiguous contracts, showing that ambiguity drives optimal contracts towards simplicity. We also provide a characterization of ambiguity-proof classes of contracts, where the principal cannot gain by infusing ambiguity. Finally, we show that when the agent can engage in mixed actions, the advantages of ambiguous contracts disappear.
Subjects: Computer Science and Game Theory (cs.GT)
Cite as: arXiv:2302.07621 [cs.GT]
  (or arXiv:2302.07621v5 [cs.GT] for this version)
  https://doi.org/10.48550/arXiv.2302.07621

Submission history

From: Michal Feldman [view email]
[v1] Wed, 15 Feb 2023 12:23:54 UTC (772 KB)
[v2] Wed, 31 May 2023 07:34:04 UTC (781 KB)
[v3] Tue, 30 Jan 2024 11:58:31 UTC (71 KB)
[v4] Wed, 7 Aug 2024 11:00:54 UTC (42 KB)
[v5] Mon, 16 Sep 2024 17:48:08 UTC (42 KB)
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