Rationality in games and institutions

Philippe Van Basshuysen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Against the orthodox view of the Nash equilibrium as “the embodiment of the idea that economic agents are rational” (Aumann, 1985, p 43), some theorists have proposed ‘non-classical’ concepts of rationality in games, arguing that rational agents should be capable of improving upon inefficient equilibrium outcomes. This paper considers some implications of these proposals for economic theory, by focusing on institutional design. I argue that revisionist concepts of rationality conflict with the constraint that institutions should be designed to be incentive-compatible, that is, that they should implement social goals in equilibrium. To resolve this conflict, proponents of revisionist concepts face a choice between three options: (1) reject incentive compatibility as a general constraint, (2) deny that individuals interacting through the designed institutions are rational, or (3) accept that their concepts do not cover institutional design. I critically discuss these options and I argue that a more inclusive concept of rationality, e.g. the one provided by Robert Sugden’s version of team reasoning, holds the most promise for the non-classical project, yielding a novel argument for incentive compatibility as a general constraint.

Keywords: concept formation; game theory; institutional design; rationality; Robert Sugden; team reasoning (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2021-12-01
New Economics Papers: this item is included in nep-gth, nep-hme, nep-hpe and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Synthese, 1, December, 2021, 199(5-6), pp. 12295 - 12314. ISSN: 0039-7857

Downloads: (external link)
http://eprints.lse.ac.uk/112463/ Open access version. (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:112463

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().