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Non-cooperative games with prospect theory players and dominated strategies

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  • Metzger, Lars Peter
  • Rieger, Marc Oliver

Abstract

We investigate a framework for non-cooperative games in normal form where players have behavioral preferences following Prospect Theory (PT) or Cumulative Prospect Theory (CPT). On theoretical grounds CPT is usually considered to be the superior model, since it normally does not violate first order stochastic dominance in lottery choices. We find, however, that CPT when applied to games may select purely dominated strategies, while PT does not. For both models we also characterize the cases where mixed dominated strategies are preserved and where violations may occur.

Suggested Citation

  • Metzger, Lars Peter & Rieger, Marc Oliver, 2019. "Non-cooperative games with prospect theory players and dominated strategies," Games and Economic Behavior, Elsevier, vol. 115(C), pages 396-409.
    • Handle: RePEc:eee:gamebe:v:115:y:2019:i:c:p:396-409
    DOI: 10.1016/j.geb.2019.04.001
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    References listed on IDEAS

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    1. Marc Rieger & Mei Wang, 2006. "Cumulative prospect theory and the St. Petersburg paradox," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 665-679, August.
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    Cited by:

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    2. Shuying Li & Guoping Tu, 2022. "Probabilistic Linguistic Matrix Game Based on Fuzzy Envelope and Prospect Theory with Its Application," Mathematics, MDPI, vol. 10(7), pages 1-30, March.
    3. Zongxian Liu & Wenshuai Song & Bo Cui & Xiaoling Wang & Hongling Yu, 2019. "A Comprehensive Evaluation Model for Curtain Grouting Efficiency Assessment Based on Prospect Theory and Interval-Valued Intuitionistic Fuzzy Sets Extended by Improved D Numbers," Energies, MDPI, vol. 12(19), pages 1-30, September.

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    More about this item

    Keywords

    Prospect theory; Framing; Reference dependent utility; Rank dependent probability weighting; Nash equilibrium; Stochastic dominance; Dominance of strategies;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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