On prospects and games: an equilibrium analysis under prospect theory

Fabio Rindone (), Salvatore Greco () and Luigi Di Gaetano ()

MPRA Paper from University Library of Munich, Germany

Abstract: The aim of this paper is to introduce prospect theory in a game theoretic framework. We address the complexity of the weighting function by restricting the object of our analysis to a 2-player 2-strategy game, in order to derive some core results. We find that dominant and indifferent strategies are preserved under prospect theory. However, in absence of dominant strategies, equilibrium may not exist depending on parameters. We also discuss a different approach presented by Metzger and Rieger (2009) and give some interesting interpretations of the two approaches.

Keywords: Game theory; Prospect theory; Nash equilibrium; Behavioural economics. (search for similar items in EconPapers)
JEL-codes: C7 C70 D03 (search for similar items in EconPapers)
Date: 2013-06-06
New Economics Papers: this item is included in nep-gth, nep-hpe, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:52131

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