Non-cooperative games with prospect theory players and dominated strategies

Lars Peter Metzger and Marc Oliver Rieger

Games and Economic Behavior, 2019, vol. 115, issue C, 396-409

Abstract: We investigate a framework for non-cooperative games in normal form where players have behavioral preferences following Prospect Theory (PT) or Cumulative Prospect Theory (CPT). On theoretical grounds CPT is usually considered to be the superior model, since it normally does not violate first order stochastic dominance in lottery choices. We find, however, that CPT when applied to games may select purely dominated strategies, while PT does not. For both models we also characterize the cases where mixed dominated strategies are preserved and where violations may occur.

Keywords: Prospect theory; Framing; Reference dependent utility; Rank dependent probability weighting; Nash equilibrium; Stochastic dominance; Dominance of strategies (search for similar items in EconPapers)
JEL-codes: C70 C73 D81 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:115:y:2019:i:c:p:396-409

DOI: 10.1016/j.geb.2019.04.001

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