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Payoff dominance and the Stackelberg heuristic.

By Andrew M. Colman and M. Bacharach

Abstract

This is the author's final draft. \ud 'The original publication is available at www.springerlink.com.'\ud http://www.springerlink.com/content/h46232710q241451/fulltext.pdfPayoff dominance, a criterion for choosing between equilibrium points in games, is intuitively compelling, especially in matching games and other games of common interests, but it has not been justified from standard game-theoretic rationality assumptions. A psychological explanation of it is offered in terms of a form of reasoning that we call the Stackelberg heuristic in which players assume that their strategic thinking will be anticipated by their co-player(s). Two-person games are called Stackelberg-soluble if the players' strategies that maximize against their co-players' best replies intersect in a Nash equilibrium. Proofs are given that every game of common interests is Stackelberg-soluble, that a Stackelberg solution is always a payoff-dominant outcome, and that in every game with multiple Nash equilibria a Stackelberg solution is a payoff-dominant equilibrium point. It is argued that the Stackelberg heuristic may be justified by evidentialist reasoning

Publisher: Springer
Year: 1997
OAI identifier: oai:lra.le.ac.uk:2381/471

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