We introduce the contraction rule for updating ambiguous beliefs. With the rule, a realized event renders an individual’s belief unambiguous when and only when the event has small ambiguity. The contraction rule is continuous and insensitive to priors that are less likely given the...

We study the design of mechanisms involving agents that have limited strategic sophistication. The literature has identified several notions of simple mechanisms in which agents can determine their optimal strategy even if they lack cognitive skills such as predicting other agents' strategies...