A Reason for Unreason: Returns-Based Beliefs in Game Theory
AbstractPlayers cooperate in experiments more than game theory would predict. We introduce the ‘returns-based beliefs’ approach: the expected returns of a particular strategy in proportion to total expected returns of all strategies. Using a decision analytic solution concept, Luce’s (1959) probabilistic choice model, and ‘hyperpriors’ for ambiguity in players’ cooperability, our approach explains empirical observations in various classes of games including the Prisoner’s and Traveler’s Dilemmas. Testing the closeness of fit of our model on Selten and Chmura (2008) data for completely mixed 2 × 2 games shows that with loss aversion, returns-based beliefs explain the data better than other equilibrium concepts.
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Bibliographic InfoPaper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 1058.
Date of creation: 01 Oct 2010
Date of revision:
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Web page: http://www.econ.cam.ac.uk/index.htm
Rationality; Subjective Probabilities; Returns-Based Beliefs;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-EVO-2010-10-16 (Evolutionary Economics)
- NEP-EXP-2010-10-16 (Experimental Economics)
- NEP-GTH-2010-10-16 (Game Theory)
- NEP-HPE-2010-10-16 (History & Philosophy of Economics)
- NEP-UPT-2010-10-16 (Utility Models & Prospect Theory)
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