The Mythology of Game Theory

Non-cooperative game theory is at its heart a theory of cognition, specifically a theory of how decisions are made. Game theory\u27s leverage is that we can design different payoffs, settings, player arrays, action possibilities, and information structures, and that these differences lead to different strategies, outcomes, and equilibria. It is well-known that, in experimental settings, people do not adopt the predicted strategies, outcomes, and equilibria. The standard response to this mismatch of prediction and observation is to add various psychological axioms to the game-theoretic framework. Regardless of the differing specific proposals and results, game theory uniformly makes certain cognitive assumptions that seem rarely to be acknowledged, much less interrogated. Indeed, it is not widely understood that game theory is essentially a cognitive theory. Here, we interrogate those cognitive assumptions. We do more than reject specific predictions from specific games. More broadly, we reject the underlying cognitive model implicitly assumed by game theory

Constructed preferences, rationality, and choice architecture

Preferences must be constructed at least some of the time. This, by itself, is not problematic for rationality. At issue is whether the construction is done in a reasonable manner. The common view is that preference construction violates coherence principles that are basic requirements of rational choice. However, traditional coherence principles are static and implicitly assume that the choice context provides no relevant information. In lab experiments, decision makers often evaluate or choose between options that are unfamiliar or even fictitious, and they may look to the context for choice-relevant cues that help them update their beliefs and construct their preferences. We review evidence that a number of apparent “biases” in decision making stem from adaptive sensitivity to subtle contextual cues. These context effects are dynamically coherent, in that preference-updating is coordinated with reasonable context-dependent belief-updating. This perspective on preference construction not only provides a different view of the psychology and rationality of decision making, it also suggests a different approach to choice architecture. Whereas the traditional nudge approach tries to engineer specific decision outcomes, often by rerouting apparent biases so that they point in desirable directions, the present approach seeks to facilitate processes in order to help people make rational decisions

The Use of Base Rate Information as a Function of Experienced Consistency

Three experiments examine the effect of base rate consistency under direct experience. Base rate consistency was manipulated by blocking trials and setting base rate choice reinforcement to be either consistent or inconsistent across trial blocks. Experiment 1 shows that, contrary to the usual finding, participants use base rate information more than individuating information when it is consistent, but less when it is inconsistent. In Experiment 2, this effect was replicated, and transferred in verbal questions posed subsequently. Despite experience with consistent base rates increasing sensitivity to base rates in word problems, verbal responses were far from normative. In Experiment 3, participants’ use of base rates was once again moderated by its consistency, but this effect was itself moderated by the diagnosticity of base rate information. Participants were highly accurate in estimating experienced base rates. These studies demonstrate that base rate usage is complex and a function of how base rates are presented (experienced versus summary statistics) and response format (choice proportions versus probability estimates). Knowledge of base rates was insufficient for proper usage in verbal word problems. Although choice proportions showed a sophisticated sensitivity to experienced base rate information, participants seemed unable to demonstrate a similar sophistication when given typical word problems indicating that base rate neglect is a function of information representation and not an inherent processing bias. Copyright Springer 2005base rate neglect, decision making, learning, choice, direct experience, diagnosticity,