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What to Maximize if You Must

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Author Info
Aviad Heifetz
Chris Shannon
Yossi Spiegel

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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 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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  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!]
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  2. Thomas Norman, 2004. "Dynamically Stable Preferences," Economics Series Working Papers 207, University of Oxford, Department of Economics. [Downloadable!]
  3. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany. [Downloadable!]
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  4. Friedman, Daniel & Singh, Nirvikar, 2007. "Equilibrium Vengeance," MPRA Paper 4321, University Library of Munich, Germany. [Downloadable!]
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  5. 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!]
  6. 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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  7. 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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  8. James Feigenbaum & Frank Caliendo & Emin Gahramanov, 2008. "Optimal Irrational Behavior," Working Papers 368, University of Pittsburgh, Department of Economics, revised Sep 2008. [Downloadable!]
  9. 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!]
  10. Werner Güth & Loreto Llorente Erviti & Anthony Ziegelmeyer, 2006. "Asymmetric Information without Common Priors: An Indirect Evolutionary Analysis of Quantity Competition," Discussion Papers on Strategic Interaction 2006-37, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  11. Leeat Yariv, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," Theory workshop papers 658612000000000072, UCLA Department of Economics. [Downloadable!]
  12. 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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  13. 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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