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Equilibrium Selection, Similarity Judgments and the "Nothing to Gain/Nothing to Lose" Effect

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  • Jonathan W. Leland

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Abstract

Rubinstein (1988, 2003) and Leland (1994, 1998, 2001, 2002) have shown that choices based on similarity judgments will account for the vast majority of observed violations of expected and discounted utility. In this paper, I show that such judgments also explain which equilibria will be selected in single-shot games with multiple equilibria, predict circumstances in which non-equilibria outcomes may predominate in such games, and predict circumstances in which specific pure strategy outcomes will predominate in games with no pure strategy equilibria.

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Bibliographic Info

Paper provided by Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia in its series CEEL Working Papers with number 0604.

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Date of creation: 2006
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Handle: RePEc:trn:utwpce:0604

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  1. Jacob K. Goeree & Charles A. Holt, 2000. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," Virginia Economics Online Papers 333, University of Virginia, Department of Economics.
  2. Jonathan W. Leland, 2002. "Similarity Judgments and Anomalies in Intertemporal Choice," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 574-581, October.
  3. Haruvy, Ernan & Stahl, Dale O., 2004. "Deductive versus inductive equilibrium selection: experimental results," Journal of Economic Behavior & Organization, Elsevier, vol. 53(3), pages 319-331, March.
  4. Rydval, Ondrej & Ortmann, Andreas, 2005. "Loss avoidance as selection principle: Evidence from simple stag-hunt games," Economics Letters, Elsevier, vol. 88(1), pages 101-107, July.
  5. T. Randolph Beard & Richard O. Beil, 1994. "Do People Rely on the Self-Interested Maximization of Others? An Experimental Test," Management Science, INFORMS, vol. 40(2), pages 252-262, February.
  6. Jonathan W. Leland, 1998. "Similarity Judgments in Choice Under Uncertainty: A Reinterpretation of the Predictions of Regret Theory," Management Science, INFORMS, vol. 44(5), pages 659-672, May.
  7. Goeree, Jacob & Holt, Charles & Palfrey, Thomas, 2005. "Regular Quantal Response Equilibrium," Working Papers 1219, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001. "Cognition and Behavior in Normal-Form Games: An Experimental Study," Econometrica, Econometric Society, vol. 69(5), pages 1193-1235, September.
  9. Goeree, Jacob K. & Holt, Charles A., 2004. "A model of noisy introspection," Games and Economic Behavior, Elsevier, vol. 46(2), pages 365-382, February.
  10. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 861-898, August.
  11. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  12. John Leland, 2010. "Generalized Similarity Judgments: An Alternative Explanation for Choice Anomalies," Levine's Working Paper Archive 7644, David K. Levine.
  13. Rubinstein, Ariel, 1988. "Similarity and decision-making under risk (is there a utility theory resolution to the Allais paradox?)," Journal of Economic Theory, Elsevier, vol. 46(1), pages 145-153, October.
  14. Keser, Claudia & Vogt, Bodo, 0000. "Why do experimental subjects choose an equilibrium which is neither risk nor payoff dominant," Sonderforschungsbereich 504 Publications 00-40, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  15. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
  16. Markman, Arthur B. & Medin, Douglas L., 1995. "Similarity and Alignment in Choice," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 117-130, August.
  17. Aizpurua, J M, et al, 1993. " Similarity and Preferences in the Space of Simple Lotteries," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 289-97, June.
  18. Buschena, David & Zilberman, David, 1995. "Performance of the Similarity Hypothesis Relative to Existing Models of Risky Choice," Journal of Risk and Uncertainty, Springer, vol. 11(3), pages 233-62, December.
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