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What to maximize if you must

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Author Info
HEIFETZ, Aviad
SHANNON, Chris
SPIEGEL, Yossi

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Abstract

The assumption that decision makers choose actions to maximize their preferences is a central tenet in economics. This assumption is often justified either formally or informally by appealing to evolutionary arguments. In contrast, this paper shows that in almost every game, payoff maximization cannot be justified by appealing to such arguments. We show that in almost every game, for almost every distortion of a player's actual payoffs, some extent of this distortion is beneficial to the player because of the resulting effect on opponents' play. Consequently, such distortions will not be driven out by any evolutionary process involving payoffmonotonic selection dynamics, in which agents with higher actual payoffs proliferate at the expense of less successful agents. In particular, under any such selection dynamics, the population will not converge to payoff-maximizing behavior. We also show that payoff-maximizing behavior need not prevail even when preferences are imperfectly observed.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003047.

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Date of creation: 01 Jun 2003
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Handle: RePEc:cor:louvco:2003047

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  23. Kyle, Albert S & Wang, F Albert, 1997. " Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?," Journal of Finance, American Finance Association, vol. 52(5), pages 2073-90, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Josef Hofbauer & Jörg Oechssler & Frank Riedel, 2005. "Brown-von Neumann-Nash Dynamics: The Continuous Strategy Case," Bonn Econ Discussion Papers bgse38_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  2. Thomas Norman, 2004. "Dynamically Stable Preferences," Economics Series Working Papers 207, University of Oxford, Department of Economics. [Downloadable!]
  3. James Feigenbaum & Frank Caliendo & Emin Gahramanov, 2008. "Optimal Irrational Behavior," Working Papers 368, University of Pittsburgh, Department of Economics, revised Sep 2008. [Downloadable!]
    Other versions:
  4. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  5. Friedman, Daniel & Singh, Nirvikar, 2007. "Equilibrium Vengeance," MPRA Paper 4321, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Ross Cressman & Josef Hofbauer & Frank Riedel, 2005. "Stability of the Replicator Equation for a Single-Species with a Multi-Dimensional Continuous Trait Space," Bonn Econ Discussion Papers bgse12_2005, University of Bonn, Germany. [Downloadable!]
  7. Gerhard Jäger & Lars Koch-Metzger & Frank Riedel, 2009. "Voronoi languages: Equilibria in cheap-talk games with high-dimensional types and few signals," Working Papers 420, Bielefeld University, Institute of Mathematical Economics. [Downloadable!]
  8. Aviad Heifetz & Ella Segev & Eric Talley, . "Market Design with Endogenous Preferences," University of Southern California Legal Working Paper Series usclwps-1001, University of Southern California Law School. [Downloadable!]
  9. Francois, Patrick, 2008. "Norms and Institution Formation," CEPR Discussion Papers 6735, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  10. David Laibson & Leeat Yariv, 2007. "Safety in Markets: An Impossibility Theorem for Dutch Books," Levine's Bibliography 122247000000001746, UCLA Department of Economics. [Downloadable!]
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  11. Aviad Heifetz & Chris Shannon & Yossi Spiegel, 2004. "What to Maximize if You Must," Discussion Papers 1414, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  12. Werner Güth & Loreto Llorente Erviti & Anthony Ziegelmeyer, 2006. "Asymmetric Information without Common Priors: An Indirect Evolutionary Analysis of Quantity Competition," Papers on Strategic Interaction 2006-37, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  13. Leeat Yariv, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," Theory workshop papers 658612000000000072, UCLA Department of Economics. [Downloadable!]
  14. Alex Possajennikov, 2008. "On the Survival of Payoff Maximizing Behavior and Delegation in Contests," Discussion Papers 2008-15, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham. [Downloadable!]
  15. Ross Cressman, 2009. "Continuously stable strategies, neighborhood superiority and two-player games with continuous strategy space," International Journal of Game Theory, Springer, vol. 38(2), pages 221-247, June. [Downloadable!] (restricted)
  16. Aviad Heifetz & Chris Shannon & Yossi Spiegel, 2005. "The Dynamic Evolution of Preferences," Discussion Papers 1415, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  17. Francois, P. & Zabojnik, J., 2003. "Trust, social capital and economic development," Discussion Paper 116, Tilburg University, Center for Economic Research. [Downloadable!]
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