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

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  • Jonathan W. Leland

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.

Suggested Citation

  • Jonathan W. Leland, 2006. "Equilibrium Selection, Similarity Judgments and the "Nothing to Gain/Nothing to Lose" Effect," CEEL Working Papers 0604, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    • Handle: RePEc:trn:utwpce:0604
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    File URL: http://www-ceel.economia.unitn.it/papers/papero06_04.pdf
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    1. 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.
    2. 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.
    3. 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.
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    8. 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.
    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. Aizpurua, J M & Ichiishi, T. & Nieto, J. & Uriarte, J. R., 1993. "Similarity and Preferences in the Space of Simple Lotteries," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 289-297, June.
    11. Jonathan W. Leland, 2002. "Similarity Judgments and Anomalies in Intertemporal Choice," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 574-581, October.
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    15. 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.
    16. 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.
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    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 233-262, December.
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    Cited by:

    1. Jonathan W. Leland & Mark Schneider, 2015. "Salience and Strategy Choice in 2 × 2 Games," Games, MDPI, vol. 6(4), pages 1-39, October.
    2. repec:cup:judgdm:v:10:y:2015:i:2:p:123-129 is not listed on IDEAS
    3. Schneider, Mark & Leland, Jonathan W., 2015. "Reference dependence, cooperation, and coordination in games," Judgment and Decision Making, Cambridge University Press, vol. 10(2), pages 123-129, March.

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