Incomplete Information

This chapter gives a brief introduction to games with incomplete information. In games with incomplete information, the players have limited information about key aspects or parameters of their opponent (technically, they do not know “their opponent's type”), such as the co-player’s strategies or payoffs. As a result, each player must form expectations about the co-player’s behavior, which can also change during the course of the game. The solution therefore always includes an assessment of probability as well as a complete plan of how to react in the different situations. The competition between two companies is used to show how they can decide about their competitor's costs in the face of uncertainty. Finally, the classic signaling game is discussed, in which an employee wants to signal their productivity to the employer through training to reduce the information asymmetry between the two. It is shown how signaling can lead to an efficient outcome.