game theory, decision-making, bias, heuristics, behavioral game theory, general equilibrium theory, bounded rationality, learning in games
The way economists and other social scientists model how people make interdependent decisions is through the theory of games. Psychologists and behavioral economists, however, have established many deviations from the predictions of game theory. In response to these findings, a broad movement has arisen to salvage the core of game theory. Extant models of interdependent decision-making try to improve their explanatory domain by adding some corrective terms or limits. We will make the argument that this approach is misguided. For this approach to work, the deviations would have to be consistent. Drawing in part on our experimental results, we will argue that deviations from classical models are not consistent for any individual from one task to the next or between individuals for the same task. In turn, the problem of finding an equilibrium strategy is not easier but rather is exponentially more difficult. It does not seem that game theory can be repaired by adding corrective terms (such as consideration of personal characteristics, social norms, heuristic or bias terms, or cognitive limits on choice and learning). In what follows, we describe new methods for investigating interdependent decision-making. Our experimental results show that people do not choose consistently, do not hold consistent beliefs, and do not in general align actions and beliefs. We will show that experimental choices are inconsistent in ways that prevent us from drawing general characterizations of an individual’s choices or beliefs or of the general population's choices and beliefs. A general behavioral game theory seems a distant and, at present, unfulfilled hope.
Gale M. Lucas et al., Can We Build Behavioral Game Theory? (2013)