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Incorporating Belief-Dependent Motivation in Games Abstract:Psychological game theory (PGT), introduced by Geanakoplos, Pearce & Stacchetti (1989) and significantly generalized by Battigalli & Dufwenberg (2009), extends the standard gametheoretic framework by letting players' utility at endnodes depend on their interactive beliefs. While it is understood that a host of applications that model and/or test the role of emotional and other psychological forces find their home in PGT, the framework is abstract andcomprises complex mathematical objects, such as players' infinite hierarchies of beliefs. Thus,PGT provides little guidance on how to model specific belief-dependent motivations and usethem in game theoretic analysis. This paper takes steps to fill this gap. Some aspects are simplified - e.g., which beliefs matter - but others are refined and brought closer to applications by providing more structure. We start with belief-dependent motivations and showhow to embed them in game forms to obtain psychological games. We emphasize the role oftime and of the perception of players' intentions. We take advantage of progress made on the foundations of game theory to expand and improve on PGT solution concepts.JEL classification:C72; C73; D81; D82; D92. Keywords:Psychological game theory; Belief-dependent motivation; Intentions; Time;Rationalizability; Self-confirming equilibrium; Bayesian sequential equilibrium

Pierpaolo Battigalli (), Roberto Corrao and Martin Dufwenberg

No 642, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Date: 2019
New Economics Papers: this item is included in nep-evo, nep-gth and nep-mic
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