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

Maps of Bounded Rationality

The work cited by the Nobel committee was done jointly with the late Amos Tversky (1937-1996) during a long and unusually close collaboration. Together, we explored the psychology of intuitive beliefs and choices and examined their bounded rationality. This essay presents a current perspective on the three major topics of our joint work: heuristics of judgment, risky choice, and framing effects. In all three domains we studied intuitions - thoughts and preferences that come to mind quickly and without much reflection. I review the older research and some recent developments in light of two ideas that have become central to social-cognitive psychology in the intervening decades: the notion that thoughts differ in a dimension of accessibility - some come to mind much more easily than others - and the distinction between intuitive and deliberate thought processes.behavioral economics; experimental economics

The Weirdest People in the World?

Behavioral scientists routinely publish broad claims about human psychology and behavior in the world’s top journals based on samples drawn entirely from Western, Educated, Industrialized, Rich and Democratic (WEIRD) societies. Researchers—often implicitly—assume that either there is little variation across human populations, or that these “standard subjects” are as representative of the species as any other population. Are these assumptions justified? Here, our review of the comparative database from across the behavioral sciences suggests both that there is substantial variability in experimental results across populations and that WEIRD subjects are particularly unusual compared with the rest of the species—frequent outliers. The domains reviewed include visual perception, fairness, cooperation, spatial reasoning, categorization and inferential induction, moral reasoning, reasoning styles, selfconcepts and related motivations, and the heritability of IQ. The findings suggest that members of WEIRD societies, including young children, are among the least representative populations one could find for generalizing about humans. Many of these findings involve domains that are associated with fundamental aspects of psychology, motivation, and behavior—hence, there are no obvious a priori grounds for claiming that a particular behavioral phenomenon is universal based on sampling from a single subpopulation. Overall, these empirical patterns suggests that we need to be less cavalier in addressing questions of human nature on the basis of data drawn from this particularly thin, and rather unusual, slice of humanity. We close by proposing ways to structurally re-organize the behavioral sciences to best tackle these challenges.external validity, population variability, experiments, cross-cultural research, culture, human universals, generalizability, evolutionary psychology, cultural psychology, behavioral economics

Using Visual Salience in Empirical Game Theory

Coordination games often have salient “focal points”. In games where choices are locations in images, we test for the effect of salience, predicted a priori using a neuroscience-based algorithm, Concentration of salience is correlated with the rate of matching when players are trying to match (r=.64). In hider-seeker games, all players choose salient locations more often, creating a “seeker’s advantage” (seekers win 9% of games). Salience-choice relations are explained by a salience-enhanced cognitive hierarchy model. The novel prediction that time pressure will increases seeker’s advantage, by biasing choices toward salience, is confirmed. Other links to salience in economics are suggested

Heuristics in Entrepreneurial Opportunity Evaluation: A Comparative Case Study of the Middle East and Germany

Heuristics are mental shortcuts applied, consciously, subconsciously or both, to save time and efforts at the expense of risking the accuracy of the outcome. Therefore, one might argue that it is just an accuracy-effort trade-off. Nonetheless, we ought to recognize the distinction between the circumstances of risk, where all choices, outcomes, and probabilities might be generally known, and the circumstances of uncertainty, where, at least some, are not. Traditional models like the Subjective Expected Utility (SEU) work best for decisions under risk but not under uncertainty, which portrays most situations people need to tackle. Uncertainty requires simple heuristics that are sufficient instead of perfect. In this dissertation, the notion of heuristics was researched through a comprehensive historical review that unfolded the heuristics-linked ideas of significant scholars. An explicit distinction between the deliberate and the automatic heuristics was stated with chronological categories of pre and post-introduction of the SEU theory; providing a new perspective and opening a discussion for future research to consider. Additionally, qualitative and quantitative studies were applied that produced an unsophisticated heuristic set that was used by entrepreneurs in the Middle East and Germany. Perhaps entrepreneurs, and people in general, do not always know or acknowledge their use of heuristics. But still, they use it extensively and may exchange heuristics among others. That may lead us to think that in a world where uncertainty prevails, the Homo heuristicus might become a real threat to the Homo economicus

The Superstitious Heuristic in Strategic Decision-making

This dissertation focuses on an important but largely ignored phenomenon in the strategic decision literature which I refer to as the use of superstitious heuristics in strategic decision-making. I define the superstitious heuristic as a decision shortcut based on one’s beliefs in the existence of forces or essences that transcend the boundary between the mental/symbolic and physical/material realities in a way that is unsupported by contemporary science. The use ofsuperstitious heuristics in strategic decision-making is prevalent in major economies and influences firms’ strategic behaviors and performance. In this dissertation, I first explored the concept of the superstitious heuristic and developed scale instruments to measure it. Then I investigated the antecedents and consequences of the use of superstitious heuristics in the strategic decision context. With a global sample of respondents from over sixty national cultures, I developed a positive and a negative Superstitious Heuristics Scale (SHS). Both scales demonstrated psychometric soundness and measurement equivalence across culture and language. To investigate the causes and effects of the use of superstitious heuristics in strategic decision-making, I administered an experiment and a survey study to a sample of Chinese middle managers and top executives, respectively. The results 1) provide insights in the role of decision uncertainty, decision importance, and superstitious thinking as positive antecedents of the use of superstitious heuristics in strategic decision-making, and 2) shed light on the positive indirect effects (through decision speed and collective efficacy) and mixed direct effects of the use of superstitious heuristics on both decision performance and firm performance. This dissertation offers theoretical, empirical, and practical contributions. In the theoretical respect, it first contributes to behavioral strategy by advancing research on the behavioral aspect of strategic decision-making and, in particular, research on heuristics in strategic management. Through investigating a prevalent but understudied phenomenon in strategic decision practice, this research expands our understanding of heuristics and strategic decision-making and offers a new angle to explain firms’ strategic behavior and performance. This dissertation further contributes to behavioral decision literature by adding a new family of decision heuristic and opening up new avenues for behavior decision theory to facilitate the inquiry of decision-making in various research disciplines. The dissertation also contributes to superstition literature by extending superstitious research to the strategic decision setting. In the empirical aspect, this dissertation contributes to behavioral strategy by enabling the study of the phenomenon of interest through providing a validated construct and measurements of the superstitious heuristic for the strategic decision context. The multidimensional nature of the superstitious heuristic opens up research opportunities to derive the superstitious heuristic profile of the firm and explore its performance consequences under diverse contingencies. The dissertation also contributes to behavioral decision literature and superstition research by offering measurements of the superstitious heuristic that are applicable to different cultures and decision settings. In the practical regard, the dissertation provides managerial implications regarding strategic decision-making and interfirm competition and cooperation