Evidential Equilibria: Heuristics and Biases in Static Games of Complete Information

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.

Heuristics and Public Policy: Decision-making Under Bounded Rationality

“…As such, a great deal of the debate that pits the two positions as adversarial is, in our view, unfortunate and misleading. 2 The main raison d'être of the G&O program is its attempt to answer the question of how people make decisions under true uncertainty; we do not believe that objective has been accomplished yet. We also raise other potential avenues of exploration for the quest to answer this fundamental question, such as social norms and mental models.…”

“…The G&O program often di¤erentiates itself from the KT&O program on the following grounds in common and in published discourse (Gigerenzer, 2008(Gigerenzer, , 2014Gigerenzer et al, 1999) that we paraphrase as follows: (1) The KT&O program suggests that people are fallible, hardwired with defective mental software; and prone to errors; that heuristics are bad; and that the appropriate normative norm of human behavior is BRA (Gigerenzer, 1996;Gigerenzer and Todd, 1999;Gigerenzer, 2014). (2) In contrast, the G&O program is designed to show that heuristics are good, and do better than optimization methods once ecological rationality is taken into account.…”

“…The following two passages from Kahneman (2000, p. 682) show just how close the two sides in the debate really are on core issues: (1) "Contrary to a common perception, researchers working in the heuristics and biases (HB) mode are less interested in demonstrating human irrationality than in understanding the psychology of intuitive judgment and choice." (2) "All heuristics make us smart, more often than not..."…”

“…(1) Choice architects (those who enact the LP policy) may not be benevolent; rather, they may be self-interested or malicious. (2) The rationale for nudges lies in people's alleged irrationality. 3Nudges ignore other policy interventions that might help.…”

Magical thinking: A representation result

“…42 Specifically, because in these models all Kantians or rule utilitarians evaluate strategies in the same way, any heterogeneity in nonstandard behavior is driven completely by asymmetry in the physical aspects of the game (e.g., variations in the cost of voting). In contrast, even in symmetric games, our model captures heterogeneity in behavior (e.g., in the sets of PD games that different players choose to cooperate in).43 Additional models in which players' beliefs about opponent play may be biased includeOrbell and Dawes (1991),Bernheim and Thomadsen (2005),Masel (2007),Capraro and Halpern (2015), alNowaihi and Dhami (2015).44 In addition, our behavioral model introduces the possibility of equilibrium multiplicity even in the PD, depending on F . It is then the axioms that rule out models with multiplicity, again showing that the second concern can also be addressed axiomatically.…”