Mental Equilibrium and Rational Emotions
AbstractWe introduce emotions into an equilibrium notion. In a mental equilibrium each player "selects" an emotional state which determines the player's preferences over the outcomes of the game. These preferences typically differ from the players' material preferences. The emotional states interact to play a Nash equilibrium and in addition each player's emotional state must be a best response (with respect to material preferences) to the emotional states of the others. We discuss the concept behind the definition of mental equilibrium and show that this behavioral equilibrium notion organizes quite well the results of some of the most popular experiments in the experimental economics literature. We shall demonstrate the role of mental equilibrium in incentive mechaisms and will discuss the concept of collective emotions, which is based on the idea that players can coordinate their emotional states.
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Bibliographic InfoPaper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp521.
Length: 29 pages
Date of creation: Sep 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-11 (All new papers)
- NEP-CBE-2009-09-11 (Cognitive & Behavioural Economics)
- NEP-EVO-2009-09-11 (Evolutionary Economics)
- NEP-EXP-2009-09-11 (Experimental Economics)
- NEP-GTH-2009-09-11 (Game Theory)
- NEP-HPE-2009-09-11 (History & Philosophy of Economics)
- NEP-NEU-2009-09-11 (Neuroeconomics)
- NEP-UPT-2009-09-11 (Utility Models & Prospect Theory)
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