Evidential equilibria: Heuristics and biases in static games

Sanjit Dhami and Ali al-Nowaihi ()

No 13/25, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence in a large number of static games such as prisoners’ dilemma, voting, public goods, oligopoly, etc. Under uncertainty about what others will do in one-shot games of complete and incomplete information, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like- minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept- evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We also apply EE to several common games including the prisoners’ dilemma and oligopoly games.

Keywords: Evidential reasoning; causal reasoning; evidential games; social projec- tion functions; ingroups and outgroups; evidential equilibria and consistent eviden- tial equilibria; Nash equilibria; the prisoners.dilemma and oligopoly games; common knowledge and epistemic foundations. (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-cbe, nep-cdm, nep-evo, nep-exp, nep-gth, nep-hpe and nep-mic
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