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Evidential equilibria: Heuristics and biases in static games of complete information Working Paper Version

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  • Ali al-Nowaihi
  • Sanjit Dhami

Abstract

Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence from a large number of static games including the prisoners dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in one-shot games, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like-minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept: evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We illustrate these concepts in the context of the prisoners dilemma game.

Suggested Citation

  • Ali al-Nowaihi & Sanjit Dhami, 2015. "Evidential equilibria: Heuristics and biases in static games of complete information Working Paper Version," Discussion Papers in Economics 15/21, Division of Economics, School of Business, University of Leicester.
  • Handle: RePEc:lec:leecon:15/21
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    Cited by:

    1. Sanjit Dhami, 2017. "Human Ethics and Virtues: Rethinking the Homo-Economicus Model," CESifo Working Paper Series 6836, CESifo.
    2. Sanjit Dhami & Junaid Arshad & Ali al-Nowaihi, 2019. "Psychological and Social Motivations in Microfinance Contracts: Theory and Evidence," CESifo Working Paper Series 7773, CESifo.
    3. Sanjit Dhami & Emma Manifold & Ali al‐Nowaihi, 2021. "Identity and Redistribution: Theory and Evidence," Economica, London School of Economics and Political Science, vol. 88(350), pages 499-531, April.
    4. Dhami, Sanjit & Wei, Mengxing & al-Nowaihi, Ali, 2019. "Public goods games and psychological utility: Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 361-390.
    5. Marek Hudik, 2020. "Equilibrium as compatibility of plans," Theory and Decision, Springer, vol. 89(3), pages 349-368, October.
    6. Sebastian Fehrler & Baiba Renerte & Irenaeus Wolff, 2020. "Beliefs about Others: A Striking Example of Information Neglect," TWI Research Paper Series 118, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    7. Marek Hudik, 0. "Equilibrium as compatibility of plans," Theory and Decision, Springer, vol. 0, pages 1-20.

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    More about this item

    Keywords

    Evidential reasoning; game theory; cognitive bias; prisoners dilemma game; oligopoly games; conservative heuristics; radical heuristics; decision making.;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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