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Isolation, Assurance and Rules : Can Rational Folly Supplant Foolish Rationality?

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  • Peter J. Hammond

    (Department of Economics, University of Warwick)

Abstract

Consider an “isolation paradox” game with many identical players. By definition, conforming to a rule which maximizes average utility is individually a strictly dominated strategy. Suppose, however, that some players think “quasi-magically” in accordance with evidential (but not causal) decision theory. That is, they act as if others’ disposition to conform, or not, is affected by their own behavior, even though they do not actually believe there is a causal link. Standard game theory excludes this. Yet such “rational folly” can sustain “rule utilitarian” cooperative behavior. Comparisons are made with Newcomb’s problem, and with related attempts to resolve prisoner’s dilemma.

Suggested Citation

  • Peter J. Hammond, 2008. "Isolation, Assurance and Rules : Can Rational Folly Supplant Foolish Rationality?," The Warwick Economics Research Paper Series (TWERPS) 842, University of Warwick, Department of Economics.
  • Handle: RePEc:wrk:warwec:842
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    File URL: https://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_842.pdf
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    References listed on IDEAS

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    1. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
    2. Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340 Elsevier.
    3. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-477, June.
    4. Masel, Joanna, 2007. "A Bayesian model of quasi-magical thinking can explain observed cooperation in the public good game," Journal of Economic Behavior & Organization, Elsevier, vol. 64(2), pages 216-231, October.
    5. John Conley & Ali Toossi & Myrna Wooders, 2006. "Memetics and voting: how nature may make us public spirited," International Journal of Game Theory, Springer;Game Theory Society, vol. 35(1), pages 71-90, December.
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