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What to Maximize if You Must

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  • Aviad Heifetz
  • Chris Shannon
  • Yossi Spiegel

Abstract

The assumption that decision makers choose actions to maximize their preferences is a central tenet in economics. This assumption is often justi…ed either formally or informally by appealing to evolutionary arguments. In contrast, we show that in almost every game and for almost every family of distortions of a player’s actual payoffs, some degree of this distortion is bene…cial to the player because of the resulting effect on opponents’ play. Consequently, such distortions will not be driven out by any evolutionary process involving payo¤-monotonic 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 payo¤-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 Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1414.

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Date of creation: Jul 2004
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Handle: RePEc:nwu:cmsems:1414

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Keywords: dispositions; evolution of preferences; genericity; selection dynamics; imperfect observability;

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