Document Type

Working Paper

Publication Date

2013

Keywords

game theory, decision-making, behavioral game theory, bounded rationality, choice, empirical research

Abstract

Game theory has been used to model large-scale social events — such as constitutional law, democratic stability, standard setting, gender roles, social movements, communication, markets, the selection of officials by means of elections, coalition formation, resource allocation, distribution of goods, and war — as the aggregate result of individual choices in interdependent decision-making. Game theory in this way assumes methodological individualism. The widespread observation that game theory predictions do not in general match observation has led to many attempts to repair game theory by creating behavioral game theory, which adds corrective terms to the game theoretic predictions in the hope of making predictions that better match observations. But for game theory to be useful in making predictions, we must be able to generalize from an individual’s behavior in one situation to that individual’s behavior in very closely similar situations. In other words, behavioral game theory needs individuals to be reasonably consistent in action if the theory is to have predictive power. We argue on the basis of experimental evidence that the assumption of such consistency is unwarranted. More realistic models of individual agents must be developed that acknowledge the variance in behavior for a given individual.

Library of Congress Subject Headings

Decision making, Choice (Psychology), Game theory, Behavioral economics

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