What to maximize if you must

Abstract

The assumption that decision makers choose actions to maximize their preferences is a central tenet in economics. This assumption is often justified either formally or informally by appealing to evolutionary arguments. In contrast, we show that in almost every game and for almost every family of distortions of a player's actual payoffs, some degree of this distortion is beneficial to the player because of the resulting effect on opponents' play. Consequently, such distortions will not be driven out by any evolutionary process involving payoff-monotonic selection dynamics, in which agents with higher actual payoffs proliferate at the expense of less successful agents. In particular, under any such selection dynamics, the population will not converge to payoff-maximizing behavior. We also show that payoff-maximizing behavior need not prevail even when preferences are imperfectly observed.

Population Games and Deterministic Evolutionary Dynamics

“…In typical (specifically, contractible) cases, this means that a component can only be asymptotically stable if its index is 1. A partial list includes auctions (Louge and Riedel, 2012); fiat money (Sethi, 1999); conspicuous consumption (Friedman and Ostrov, 2008); common resource use (Sethi and Somanathan, 1996); cultural evolution (Bisin and Verdier, 2001;Sandholm, 2001c;Kuran and Sandholm, 2008;Montgomery, 2010); the evolution of language (Pawlowitsch, 2008); implementation problems (Cabrales and Ponti, 2000;Sandholm, 2002Sandholm, , 2005bFujishima, 2012); international trade (Friedman and Fung, 1996); residential segregation (Dokumacı and Sandholm, 2007); preference evolution (Sandholm, 2001c;Heifetz et al, 2007;Norman, 2012); and theories of mind (Mohlin, 2012). are precisely the ones in which traditional equilibrium assumptions seem questionable.…”

Price and Quantity Contracts in a Mixed Duopoly with a Socially Concerned Firm

“…(), Saha (), Goering (, ), Lambertini and Tampieri (), Kelsey and Milne (), and Lien (). Furthermore, Königstein and Müller () use an evolutionary setting to show that firms can benefit from considering profit plus consumer surplus (see also Heifetz et al ., ; Kopel et al ., ). Notice that for θ = 0, the private duopoly considered by Singh and Vives () results.…”

Evolutionary Game Theory: A Renaissance

“…This outcome is usually assumed to be a Nash equilibrium and, in the tradition of Harsanyi [148], types are usually taken to specify the payoffs of players. Examples of such models can be found in Dekel et al [99], Heifetz et al [154], Samuelson [302], Sethi and Somanathan [323]. In general, a change in the type of only one player can lead to a change in everyone's behavior via the assumption of equilibrium.…”

“…This has been considered in the evolution of preferences literature (e.g., Dekel et al [99], Heifetz et al [154]), in which non-observability of types reduces the possibility of assortativity in behavior according to type. That is, if Alice cannot observe that Bob is a mutant, she cannot condition her behavior towards him on whether or not he is a mutant.…”