Rationality, Inaccurate Mental Models, and Self-confirming Equilibrium

Abstract

Rational choice theorists have long been ambivalent about the rationality postulate. Although many agree that humans have imperfect foresight and inaccurate understandings of the world within which they act, no satisfactory approach relaxing the rationality postulates exists. In this article, we apply a new method that allows us to model directly rational action when agents have incomplete or inaccurate mental models of their world. In particular, we utilize the game theoretic notion of self-confirming equilibrium. The selfconfirming equilibrium framework allows us to model an environment where a player's predictions about one another's behavior are inaccurate. It also allows us to model a common aspect of disputes; viz., that both sides believe they are acting reasonably while the other side is acting unreasonably. Finally, the approach allows a type of surprise in which a player's mis-conjectures about another's behavior results in behavior that was not anticipated. We apply this framework to the problem of the American Revolution, helping to resolve several unexplained puzzles in the historical literature. Historians of the Revolution emphasize the role of ideas in underpinning the revolutionary crisis. From the rational choice standpoint, a critical omission in the literature is that historians do not connect the realm of ideas with the realm of action. We demonstrate how the framework we propose can more directly shed light on three aspects absent in the existing literature. First, to explain why either side fought about abstract ideals or how those ideals were connected to the realm of action, and thus why the two sides failed to come to some accommodation despite their differences. Second, to explain why the colonists became so incensed over seemingly trivial taxes imposed by the British after the Seven Years' War ended in 1763. And, finally, to explain that if the clash of fundamental ideals led the two sides to armed conflict, The authors gratefully acknowledge helpful conversations with Downloaded from how the British and the Americans could be unaware of their profound differences during the previous 100 plus years of cooperation.

Frames, reasoning, and the emergence of conventions

“…The understanding of the American Revolution put forward by Jack Rakove, Barry Weingast and co-authors (Rakove 1996;Rakove et al 2005;de Figueiredo et al 2006) has some interesting similarities with the framework developed here. As historians have long recognized, the revolutionary crisis was 'the product of : : : dimly perceived and rapidly changing thoughts and situations', and its escalation 'becomes comprehensible only when the mental framework : : : into which the Americans fitted the events of the 1760s and 1770s is known' (Wood 1966: 14, 23).…”

Analytic Narratives, Case Studies, and Development

“…The approach actually makes it possible to take surprises into account since they often take the form of events that would change comparative static outcomes. De Figueiredo, Rakove, and Weingast (2006), illustrates one means by which game theoretic models can be generalized to encompass surprises. Those…”

Why Not Taxation and Representation? A Note on the American Revolution

“…The American colonists started to realize how the mother country's attitude toward them was changing and, whereas before they had felt that they were somehow represented in Parliament through their agents and correspondents, they now began to feel that they were being discriminated against. They also saw the attempts to increase British authority in the colonies as a serious threat to their self-governance (see Barrow 1970 andDe Figuereido, Rakove andWeingast 2006) and began to pressure their local assemblies to work harder to advance their interests (Olson 1992, p. 160). 9…”

“…American representatives could be a formidable ally that would improve the Wilkesites'chance of pushing their reformist agenda through. 16 The fact that the Wilkesites and their reformist program were considered a serious threat by the landed gentry and the Crown is clearly re ‡ected in the disputes that arose regarding the election of John Wilkes as the Lord Mayor of London. Although the city of London was the closest to having a democratic government of any district in England, there was a small group of powerful aldermen who usually managed to manipulate the elections to ensure that the candidate favored by the Crown won.…”