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The Chain Store Paradox

Listed author(s):
  • Reinhard Selten

    (Institute of Mathematical Economics, Bielefeld University)

It is the purpose of this paper to present the example of a simple game in extensive form where the actual behavior of well informed players cannot be expected to agree with the clear results of game theoretical reasoning. A story about a fictitious chain store and its potential competitors is a convenient way to describe the game. This expositionary device should not be misunderstood as a model of a real situation. In view of the story the game will be called "the chain store game". The disturbing disagreement between plausible game behavior and game theoretical reasoning constitutes the "chain store paradox". The chain store paradox throws new light on the well known difficulties which arise in connection with the finite supergame of prisoners' dilemma game. A limited rationality approach seems to be needed in order to explain human strategic behavior. An attempt shall be made to discuss the possibility of a "tree-level theory of decision making" as an explanation of discrepancies between game theoretic analysis and human behavior.

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File Function: First version, 1974
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Paper provided by Center for Mathematical Economics, Bielefeld University in its series Center for Mathematical Economics Working Papers with number 018.

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Date of creation: Jul 1974
Handle: RePEc:bie:wpaper:018
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  1. Hart, Sergiu & Kohlberg, Elon, 1974. "Equally distributed correspondences," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 167-174, August.
  2. Reinhard Selten, 1973. "A Simple Model of Imperfect Competition, where 4 are Few and 6 are Many," Center for Mathematical Economics Working Papers 008, Center for Mathematical Economics, Bielefeld University.
  3. Lester B. Lave, 1962. "An Empirical Approach to the Prisoners' Dilemma Game," The Quarterly Journal of Economics, Oxford University Press, vol. 76(3), pages 424-436.
  4. Melvin Guyer & John Fox & Henry Hamburger, 1973. "Format Effects in the Prisoner's Dilemma Game," Journal of Conflict Resolution, Peace Science Society (International), vol. 17(4), pages 719-744, December.
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