There is a growing amount of experimental evidence that suggests people often
deviate from the predictions of game theory. Some scholars attempt to explain the
observations by introducing errors into behavioral models. However, most of these
modifications are situation dependent and do not generalize. A new theory, called the
rational novice model, is introduced as an attempt to provide a general theory that takes
account of erroneous behavior. The rational novice model is based on two central
principals. The first is that people systematically make inaccurate guesses when they are
evaluating their options in a game-like situation. The second is that people treat their
decisions similar to a portfolio problem. As a result, non optimal actions in a game
theoretic sense may be included in the rational novice strategy profile with positive
weights.
The rational novice model can be divided into two parts: the behavioral model and
the equilibrium concept. In a theoretical chapter, the mathematics of the behavioral model
and the equilibrium concept are introduced. The existence of the equilibrium is established.
In addition, the Nash equilibrium is shown to be a special case of the rational novice
equilibrium. In another chapter, the rational novice model is applied to a voluntary
contribution game. Numerical methods were used to obtain the solution. The model is
estimated with data obtained from the Palfrey and Prisbrey experimental study of the
voluntary contribution game. It is found that the rational novice model explains the data
better than the Nash model. Although a formal statistical test was not used, pseudo R^2
analysis indicates that the rational novice model is better than a Probit model similar to the
one used in the Palfrey and Prisbrey study.
The rational novice model is also applied to a first price sealed bid auction. Again,
computing techniques were used to obtain a numerical solution. The data obtained from
the Chen and Plott study were used to estimate the model. The rational novice model
outperforms the CRRAM, the primary Nash model studied in the Chen and Plott study.
However, the rational novice model is not the best amongst all models. A sophisticated
rule-of-thumb, called the SOPAM, offers the best explanation of the data.</p
