On the Existence of Low-Rank Explanations for Mixed Strategy Behavior

Nash equilibrium is used as a model to explain the observed behavior of players in strategic settings. For example, in many empirical applications we observe player behavior, and the problem is to determine if there exist payoffs for the players for which the equilibrium corresponds to observed player behavior. Computational complexity of Nash equilibria is an important consideration in this framework. If the instance of the model that explains observed player behavior requires players to have solved a computationally hard problem, then the explanation provided is questionable. In this paper we provide conditions under which Nash equilibrium is a reasonable explanation for strategic behavior, i.e., conditions under which observed behavior of players can be explained by games in which Nash equilibria are easy to compute. We identify three structural conditions and show that if the data set of observed behavior satisfies any of these conditions, then it is consistent with payoff matrices for which the observed Nash equilibria could have been computed efficiently. Our conditions admit large and structurally complex data sets of observed behavior, showing that even with complexity considerations, Nash equilibrium is often a reasonable model.Comment: Updated writeup. 19 page

Comparative Politics of Strategic Voting: A Hierarchy of Electoral Systems

What is the impact of electoral rules on the way people make decisions in the voting booth? Traditionally the literature about electoral systems argues that the size of the district magnitude determines the amount of strategic voting. I argue, however, that different electoral systems provide incentives that potentially undermine or facilitate the Duvergerian logic in practice. Contrary to the literature the results indicate that the impact of the district magnitude on the frequency of strategic voting in a given polity is conditional on the type of seat allocation system that defines how votes get translated into parliamentary seats.

Coordination, focal points and voting in strategic situations : a natural experiment

This paper studies coordination in a multi-stage elimination tournament with large monetary incentives and a diversified subject pool drawn from the adult British population. In the tournament, members of an ad hoc team earn money by answering general knowledge questions and then eliminate one contestant by plurality voting without prior communication. We find that in the early rounds of the tournament, contestants use a focal principle and coordinate on one of the multiple Nash equilibria in pure strategies by eliminating the weakest member of the team. However, in the later rounds, contestants switch to playing a mixed strategy Nash equilibrium

Overconfidence and Excess Entry: An Experimental Approach

Psychological studies show that most people are overconfident about their own relative abilities, and unreasonably optimistic about their futures (e.g., Neil D. Weinstein, 1980; Shelly E. Taylor and J. D. Brown, 1988). When assessing their position in a distribution of peers on almost any positive trait-like driving ability (Ola Svenson, 1981), income prospects, or longevity-a vast majority of people say they are above the average, although of course, only half can be (if the trait is symmetrically distributed)

The Strategic Euro Laggards

A government applying for a club membership may strategically delay entry to cope with the hold-up problem introduced by anticipatory investments of the private sector. In equilibrium of a two-period incomplete information game, we find that a pro-entry government may strategically delay to imitate an anti-entry government and thereby affect expectations of the private sector. The delay is more likely if the government has a good electoral prospect, is internationally weak, and is not considered to be too keen on entry. The model is related to the case of the Czech Republic where the government recently softened commitment in the euro adoption strategy.EMU, club enlargement, international unions, bargaining

Progress in Behavioral Game Theory

Is game theory meant to describe actual choices by people and institutions or not? It is remarkable how much game theory has been done while largely ignoring this question. The seminal book by von Neumann and Morgenstern, The Theory of Games and Economic Behavior, was clearly about how rational players would play against others they knew were rational. In more recent work, game theorists are not always explicit about what they aim to describe or advise. At one extreme, highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions. At the other extreme, adaptive and evolutionary approaches use very simple models-mostly developed to describe nonhuman animals-in which players may not realize they are playing a game at all. When game theory does aim to describe behavior, it often proceeds with a disturbingly low ratio of careful observation to theorizing

Returns-Based Beliefs and The Prisoner's Dilemma

Economists have highlighted a number of game-theoretic contradictions and paradoxes i

Ceteris Paribus Laws

Laws of nature take center stage in philosophy of science. Laws are usually believed to stand in a tight conceptual relation to many important key concepts such as causation, explanation, confirmation, determinism, counterfactuals etc. Traditionally, philosophers of science have focused on physical laws, which were taken to be at least true, universal statements that support counterfactual claims. But, although this claim about laws might be true with respect to physics, laws in the special sciences (such as biology, psychology, economics etc.) appear to have—maybe not surprisingly—different features than the laws of physics. Special science laws—for instance, the economic law “Under the condition of perfect competition, an increase of demand of a commodity leads to an increase of price, given that the quantity of the supplied commodity remains constant” and, in biology, Mendel's Laws—are usually taken to “have exceptions”, to be “non-universal” or “to be ceteris paribus laws”. How and whether the laws of physics and the laws of the special sciences differ is one of the crucial questions motivating the debate on ceteris paribus laws. Another major, controversial question concerns the determination of the precise meaning of “ceteris paribus”. Philosophers have attempted to explicate the meaning of ceteris paribus clauses in different ways. The question of meaning is connected to the problem of empirical content, i.e., the question whether ceteris paribus laws have non-trivial and empirically testable content. Since many philosophers have argued that ceteris paribus laws lack empirically testable content, this problem constitutes a major challenge to a theory of ceteris paribus laws