Using Rules-of-Thumb: A Note on Sophisticated vs. Simple Mixing in Two-Player Randomly Matched Games

Christian Alcocer; Thomas D. Jeitschko and Thomas D. Jeitschko
Authors registered in the RePEc Author Service: Thomas D. Jeitschko

Vniversitas Económica, 2018, vol. 0, issue 0, No 16344, 12 pages

Abstract: We postulate a new behavioral bias in how people play mixed strategies by proposing the existence of simple players who lack strategic depth; in a sense, they are the simplest possible agents that do not directly contradict the economic principle of utility maximization. We deOne them as those who, when indi§erent between choices, follow a simple rule-of-thumb and assign a predetermined probability to each. We show that if they play 2 2 games, an equilibrium generally fails to exist. However, under random matching within populations with some proportion of simple players, equilibrium is restored and is indistinguishable from Nash equilibria in games with unrestricted strategy choices, as long as the percentage of simple mixers is small enough. As such, players are unable to take advantage of the presence of simple mixers, and simple mixers do no worse than more sophisticated players.

Keywords: Behavioral; Bounded Rationality; Mixed Equilibria (search for similar items in EconPapers)
JEL-codes: C72 D03 D83 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:col:000416:016344

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