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The neural basis of bounded rational behavior

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  • Giorgio Coricelli

    ()
    (University of Southern California and Centre of Cognitive Neuroscience, Bron (Lyon), France.)

  • Rosemarie Nagel

    ()
    (Universitat Pomepu Fabra)

Abstract

Bounded rational behaviour is commonly observed in experimental games and in real life situations. Neuroeconomics can help to understand the mental processing underlying bounded rationality and out-of-equilibrium behaviour. Here we report results from recent studies on the neural basis of limited steps of reasoning in a competitive setting – the beauty contest game. We use functional magnetic resonance imaging (fMRI) to study the neural correlates of human mental processes in strategic games. We apply a cognitive hierarchy model to classify subject’s choices in the experimental game according to the degree of strategic reasoning so that we can identify the neural substrates of different levels of strategizing. We found a correlation between levels of strategic reasoning and activity in a neural network related to mentalizing, i.e. the ability to think about other’s thoughts and mental states. Moreover, brain data showed how complex cognitive processes subserve the higher level of reasoning about others. We describe how a cognitive hierarchy model fits both behavioural and brain data.

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File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers10_11.pdf
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Bibliographic Info

Paper provided by Department of Economic Theory and Economic History of the University of Granada. in its series ThE Papers with number 10/11.

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Length: 21 pages
Date of creation: 01 Oct 2010
Date of revision:
Handle: RePEc:gra:wpaper:10/11

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Keywords: Game theory; Bounded rationality; Neuroeconomics;

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  1. Ho, Teck Hua & Weigelt, Keith & Camerer, Colin, 1996. "Iterated Dominance and Iterated Best-Response in Experimental P-Beauty Contests," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 974, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(3), pages 861-898, August.
  3. Selten, Reinhard, 1998. "Features of experimentally observed bounded rationality," European Economic Review, Elsevier, vol. 42(3-5), pages 413-436, May.
  4. Miguel Costa-Gomes & Vincent P. Crawford, 2004. "Cognition And Behavior In Two-Person Guessing Games: An Experimental Study," Levine's Bibliography 122247000000000143, UCLA Department of Economics.
  5. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1313-26, December.
  6. Bhatt, Meghana & Camerer, Colin F., 2005. "Self-referential thinking and equilibrium as states of mind in games: fMRI evidence," Games and Economic Behavior, Elsevier, vol. 52(2), pages 424-459, August.
  7. McCabe, Kevin & Houser, Daniel & Ryan, Lee & Smith, Vernon & Trouard, Ted, 2001. "A Functional Imaging Study of Cooperation in Two-Person reciprocal Exchange," MPRA Paper 5172, University Library of Munich, Germany.
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