Evidential equilibria: Heuristics and biases in static games of complete information Working Paper Version

Ali al-Nowaihi () and Sanjit Dhami

No 15/21, 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 from a large number of static games including the prisoners dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in one-shot games, 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 illustrate these concepts in the context of the prisoners dilemma game.

Keywords: Evidential reasoning; game theory; cognitive bias; prisoners dilemma game; oligopoly games; conservative heuristics; radical heuristics; decision making. (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
Date: 2015-08
New Economics Papers: this item is included in nep-cdm, nep-evo, nep-exp, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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