## Ten little treasures of game theory and ten intuitive contradictions (2001)

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Venue: | AMERICAN ECONOMIC REVIEW |

Citations: | 84 - 6 self |

### BibTeX

@ARTICLE{Goeree01tenlittle,

author = {Jacob K. Goeree and Charles A. Holt},

title = {Ten little treasures of game theory and ten intuitive contradictions},

journal = {AMERICAN ECONOMIC REVIEW},

year = {2001},

volume = {91},

pages = {1402--1422}

}

### Years of Citing Articles

### OpenURL

### Abstract

This paper reports laboratory data for games that are played only once. These games span the standard categories: static and dynamic games with complete and incomplete information. For each game, the treasure is a treatment in which behavior conforms nicely to predictions of the Nash equilibrium or relevant refinement. In each case, however, a change in the payoff structure produces a large inconsistency between theoretical predictions and observed behavior. These contradictions are generally consistent with simple intuition based on the interaction of payoff asymmetries and noisy introspection about others’ decisions.

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Citation Context ...al contents, and we will entertain any claim between $180 and 4 A well-known example for which this iterated deletion process results in a unique outcome is a Cournot duopoly game with linear demand (=-=Fudenberg and Tirole, 1993-=-, pp. 47-48). 5 In other games, rationalizability may allow outcomes that are not Nash equilibria, so it is a weaker concept than that of a Nash equilibrium, allowing a wider range of possible behavio... |

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Citation Context ...us behavior in bargaining games hinge on models of preferences in which a person’s utility depends on the payoffs of both players, i.e. distribution matters (Bolton, 1998; Bolton and Ockenfels, 2000; =-=Fehr and Schmidt, 1999-=-). The role of fairness is illustrated dramatically in the experiment reported in Goeree and Holt (2000a), who obtained even larger deviations from subgame perfect Nash predictions than those reported... |

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Citation Context ...us behavior in bargaining games hinge on models of preferences in which a person’s utility depends on the payoffs of both players, i.e. distribution matters (Bolton, 1998; Bolton and Ockenfels, 2000; =-=Fehr and Schmidt, 1999-=-). The role of fairness is illustrated dramatically in the experiment reported in Goeree and Holt (2000a), who obtained even larger deviations from subgame perfect Nash predictions than those reported... |

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Citation Context ...rence of the high fraction of P decisions in the bottom game of Figure 4 may be due to negative emotions that follow the first-player’s R decision, which reduces the second player’s earnings (Matthew =-=Rabin, 1993-=-). Notice that this earnings reduction does not occur when the first player chooses R for the game in the bottom part of Figure 3, which could 13 See Beard and Beil (1994) for similar results in a two... |

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Citation Context ...d asymmetric information.s13 One of the major developments coming out of these applications was the use of backward induction rationality to eliminate equilibria with threats that are not "credib=-=le" (Selten, 1975).-=- Backward induction was also used to develop solutions to alternating-offer bargaining games (Rubinstein, 1982), which was the first major advance on this historically perplexing topic since Nash’s ... |

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Citation Context ...ns of adjustment are well explained by a naive Bayesian learning model with decision error, and the claim distributions for the final five periods are close to those predicted by a logit equilibrium (=-=McKelvey and Palfrey, 1995-=-).sSymmetric Matching Pennies Asymmetric Matching Pennies Reversed Asymmetry 9 Table 1. Three One-Shot Matching Pennies Games (with choice percentages) Left (48%) Right (52%) Top (48%) 80, 40 40, 80 B... |

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Citation Context ...rence of the high fraction of P decisions in the bottom game of Figure 4 may be due to negative emotions that follow the first player’s R decision, which reduces the second player’s earnings (Matthew =-=Rabin, 1993-=-). Notice that this earnings reduction does not occur when the first player chooses R for the game in the bottom part of Figure 3, which could explain the lower rate of punishments in that game. The a... |

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Citation Context ...se, it is possible that this result is simply a consequence of "loss-aversion," i.e. the disutility of losing some amount of money is greater than the utility associated with winning the sam=-=e amount (Camerer, 1997-=-). Since all the other columns contain negative payoffs, loss-averse subjects would thus be naturally inclined to choose Non-Nash. Therefore, we ran another 50 subjects through the same game, but with... |

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Citation Context ...se, it is possible that this result is simply a consequence of "loss-aversion," i.e. the disutility of losing some amount of money is greater than the utility associated with winning the same amount (=-=Kahneman, Knetsch, and Thaler, 1991-=-). Since all the other columns contain negative payoffs, loss-averse subjects would thus be naturally inclined to choose Non-Nash. Therefore, we ran another 50 subjects through the same game, but with... |

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Citation Context ...when there is no obvious way for players to coordinate. More compelling arguments can be given for the Nash equilibrium when it predicts the play of the unique justifiable, or rationalizable, action (=-=Bernheim, 1984-=-; Pierce, 1984). Rationalizability is based on the idea that players should eliminate those strategies that are never a best response for any possible beliefs, and realize that other (rational) player... |

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Citation Context ...iations from Nash predictions are based on models that limit players’ capacities for introspection, either by limiting the number of iterations (e.g. Dale O. Stahl and Paul W. Wilson, 1995; Rosemarie =-=Nagel, 1995-=-) or by injecting increasing amounts of noise into higher levels of iterated beliefs (Goeree and Holt, 1999; Dorothea Kübler and Georg Weizsäcker, 2000). The predictions derived from these approaches,... |

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Citation Context ...senthal (1981) quickly proposed a game, later dubbed the "centipede game," in which backward induction over a large number of stages (e.g. 100 stages) was thought to be particularly problema=-=tic (e.g. McKelvey and Palfrey, 1992). M-=-any of the games in this section are inspired by Rosenthal’s (1981) doubts and Beard and Beil’s (1994) experimental results. Indeed, the anomalies in this section are better known than those in ot... |

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Citation Context ... to the equilibrium that is worst for all concerned (van Huyck, Battalio, and Beil, 1990). Moreover, the equilibrium that is selected may be affected by the payoff structure for dominated strategies (=-=Cooper et al., 1992-=-). See Goeree and Holt (1998) for results of a repeated coordination game with random matching. They show that the dynamic patterns of effort decisions are well explained by a simple evolutionary mode... |

63 |
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Citation Context ...ilibrium (Richard D. McKelvey and Thomas R. Palfrey, 1995; Simon P. Anderson, Jacob K. Goeree, and Charles A. Holt, 1998a, 1998b, 1999; Stanley S. Reynolds, 1999; Goeree and Holt, 1999; and C. Monica =-=Capra et al., 1999-=-, 2000). A second type of rationality assumption that is built into the Nash equilibrium is that beliefs are consistent with actual decisions. Beliefs are not likely to be confirmed out of equilibrium... |

58 |
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Citation Context ... This schizophrenic stance may seem inconsistent, but it may prevent unnecessary anxiety, and some of Selten’s recent theoretical work is based on models of boundedly rational (directional) learning=-= (Selten and Buchta, 1994-=-). In contrast, John Nash was reportedly discouraged by the predictive failures of game theory and gave up on both experimentation and game theory (Nasar, 1998, p.150). Two-Stage Bargaining Games Barg... |

58 | 2004) “Limited depth of reasoning and failure of cascade formation
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Citation Context ...the thought process, without making an arbitrary assumption about the number of iterations, is to inject increasing amounts of noise into higher levels of iterated thinking (Goeree and Holt,22 1999; =-=Kübler and Weizsäcker, 2000-=-). Let φ µ denote the logit best response map (for error rate µ) on the right side of (1). Just as a single logit response to beliefs, p0, can be represented as p = φ µ(p0), a series of such responses... |

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(Show Context)
Citation Context ...is no obvious way for players to coordinate. More compelling arguments can be given for the Nash equilibrium when it predicts the play of the unique justifiable, or rationalizable, action (Douglas B. =-=Bernheim, 1984-=-; David G. Pierce, 1984). Rationalizability is based on the idea that players should eliminate those strategies that are never a best response for any possible beliefs, and realize that other (rationa... |

47 | Stochastic Game Theory: For Playing Games, Not Just for Doing Theory
- Goeree, Holt
- 1999
(Show Context)
Citation Context ... that are quite far from any Nash equilibrium (Richard D. McKelvey and Thomas R. Palfrey, 1995; Simon P. Anderson, Jacob K. Goeree, and Charles A. Holt, 1998a, 1998b, 1999; Stanley S. Reynolds, 1999; =-=Goeree and Holt, 1999-=-; and C. Monica Capra et al., 1999, 2000). A second type of rationality assumption that is built into the Nash equilibrium is that beliefs are consistent with actual decisions. Beliefs are not likely ... |

46 | Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction - Anderson, Goeree, et al. - 1998 |

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38 |
Incorporating Fairness into Game Theory and Economics,’’ American Economic Review, LXXXIII
- Rabin
- 1993
(Show Context)
Citation Context ...rence of the high fraction of P decisions in the bottom game of Figure 4 may be due to negative emotions that follow the first-player’s R decision, which reduces the second player’s earnings (Matthew =-=Rabin, 1993-=-). Notice that this earnings reduction does not occur when the first player chooses R for the game in the bottom part of Figure 3, which could14 explain the lower rate of punishments in that game. Th... |

37 | 2004) “A model of noisy introspection
- Goeree, Holt
(Show Context)
Citation Context ...ve a reinforcing effect that drives behavior well away from Nash predictions, and therefore, we often resort to computer simulations and theoretical analyses of learning and decision error processes (=-=Goeree and Holt, 1999-=-a). This new approach to a stochastic game theory enhances the behavioral relevance and a usefulness of standard game theory. And looking at laboratory data induces a lot less anguish than before. 17 ... |

36 | An experimental test of equilibrium dominance in signaling games - Brandts, Holt - 1992 |

36 |
An experimental study of the centipede game, Econometrica 60
- McKelvey, Palfrey
- 1992
(Show Context)
Citation Context ...senthal (1981) quickly proposed a game, later dubbed the "centipede game," in which backward induction over a large number of stages (e.g. 100 stages) was thought to be particularly problematic (e.g. =-=McKelvey and Palfrey, 1992-=-). Many of the games in this section are inspired by Rosenthal’s (1981) doubts and Randolph T. Beard and Beil’s (1994) experimental results. Indeed, the anomalies in this section are better known than... |