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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.

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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    References listed on IDEAS

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    1. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
    2. 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.
    3. 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.
    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. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 861-898.
    11. Jacob Goeree & Charles Holt & Thomas Palfrey, 2005. "Regular Quantal Response Equilibrium," Experimental Economics, Springer;Economic Science Association, vol. 8(4), pages 347-367, December.
    12. 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.
    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. Goeree, Jacob K. & Holt, Charles A., 2004. "A model of noisy introspection," Games and Economic Behavior, Elsevier, vol. 46(2), pages 365-382, February.
    16. 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.
    17. Leland, Jonathan W, 1994. "Generalized Similarity Judgments: An Alternative Explanation for Choice Anomalies," Journal of Risk and Uncertainty, Springer, vol. 9(2), pages 151-172, October.
    18. Jonathan W. Leland, 2002. "Similarity Judgments and Anomalies in Intertemporal Choice," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 574-581, October.
    19. Keser, Claudia & Vogt, Bodo, 2000. "Why do experimental subjects choose an equilibrium which is neither risk nor payoff dominant," Papers 00-40, Sonderforschungsbreich 504.
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    Cited by:

    1. Jonathan W. Leland & Mark Schneider, 2015. "Salience and Strategy Choice in 2 × 2 Games," Games, MDPI, Open Access Journal, vol. 6(4), pages 1-39, October.
    2. Mark Schneider & Jonathan W. Leland, 2015. "Reference dependence, cooperation, and coordination in games," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(2), pages 123-129, March.

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