Behavioral Game Theory

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1 Behavioral Game Theory Experiments in Strategic Interaction Colin F. Camerer Russell Sage Foundation, New York, New York Princeton University Press, Princeton, New Jersey

2 Preface Introduction 1.1 What Is Game Theory Good For? 1.2 Three Examples Example 1: Ultimatum Bargaining Example 2: Path-Dependent Coordination in "Continental Divide" Games Example 3: "Beauty Contests" and Iterated Dominance 1.3 Experimental Regularity and Behavioral Game Theory 1.4 Conclusion Appendix Al.l Basic Game Theory A1.2 Experimental Design Dictator, Ultimatum, and Trust Games 2.1 Ultimatum and Dictator Games: Basic Results 2.2 Methodological Variables Repetition Methodology: Stakes Anonymity and Experimenter "Blindness" 2.3 Demographic Variables Gender Race Academic Major Age Brains, Biology, and Beauty 2.4 Culture xiii Vll

3 vjjj Contents 2.5 Descriptive Variables: Labeling and Context Structural Variables Identity, Communication, and Entitlement Competitive Pressure and Outside Options Information about the Amount Being Divided Multiperson Games Intentions: Influence of Unchosen Alternatives Trust Games Is Trustworthiness Just Altruism? Indirect Reciprocity, Karma, Culture A Complex Omnibus Game Multistage Trust Games Gift Exchange in Experimental Labor Markets Theory Pure and Impure Altruism Inequality-Aversion Theories Fairness Equilibrium (Rabin) Extensive-Form Fairness Equilibrium Comparing Approaches Conclusion Mixed-Strategy Equilibrium Early Studies Modern Studies Subjective Randomization and Mixed Strategies Explicit Randomization Patent Race and Location Games with Mixed Equilibria Two Field Studies Conclusion Bargaining Unstructured Bargaining Unstructured Bargaining over Ticket Allocations Self-Serving Interpretations of Evidence in Unstructured Bargaining Structured Bargaining Finite Alternating-Offer Games Limited Computation Random Termination Games with Fixed Delay Costs and Outside Options Bargaining under Incomplete Information One-Sided Buyer Information with Seller-Only Offers 183

4 ix One-Sided Private Information and Strikes Sealed-Bid Mechanisms for Bilateral Bargaining Conclusion Dominance-Solvable Games Simple Dominance-Solvable Games Games Solvable by Two Steps of Iterated Dominance Iterated Dominance and Tree-Matrix Differences A Partially Dominance-Solvable Patent Race Game Beauty Contest Games Games in Which Iterated Reasoning Decreases Payoffs Centipede Games Prisoners' Dilemma and Quasi-Centipede Games Price Competition The Travelers' Dilemma The " Game" An Implementation Mechanism That Uses Iterated Dominance When More Iteration Is Better: The "Dirty Faces" Game The "Groucho Marx" Theorem in Zero-Sum Betting Structural Models of Decision Rules and Levels of Reasoning Theories Multiple Types Payoff-Sensitive Noisy Iteration QRE Refinements: Differences and Asymmetry in X A Poisson Cognitive Hierarchy Conclusion 258 Appendix: Raw Choices in Game and Additional Data Learning Theories of Learning Reinforcement Learning Reinforcement in Weak-Link Games Reinforcement with Payoff Variability Reinforcement with "Mood Shocks" Information Conditions Belief Learning Weighted Fictitious Play 283

5 6.3.2 General Belief Learning Learning Direction Theory Bayesian Learning Measuring Beliefs Directly Population-Level Replicator Dynamics Imitation Learning Comparative Studies Comparing Belief Models Comparing Belief and Reinforcement Models Experience-Weighted Attraction (EWA) Learning Example: Continental Divide Example: /?-Beauty Contest, and Sophistication Functional EWA (fewa) Rule Learning Econometric Studies of Estimation Properties Conclusions Coordination Matching Games Assignment Games and Visual Selection Unpacking Focality Asymmetric Players: Battle of the Sexes Outside Options Communication Evolution of Meaning External Assignment Timing Market Entry Games Multiple Markets Skill Payoff-Asymmetric Order-Statistic Games Experimental Evidence Weak-Link Games Mergers, Bonus Announcements, and "Leadership" Median-Action Games Preplay Auctions and Entry Fees General Order-Statistic Games Selecting Selection Principles Simplicity Empirical Comparison of Selection Principles 398

6 xi 7.6 Applications: Path-Dependence, Market Adoption, and Corporate Culture Path-Dependence: Creating a Laboratory "Continental Divide" Market Adoption Culture Conclusion 403 Appendix: Psycholinguistics Signaling and Reputation Simple Signaling Games and Adaptive Dynamics Specialized Signaling Games Lobbying Corporate Finance Games with Ratchet Effects Belief Learning in Limit Pricing Signaling Games Reputation Formation Trust Entry Deterrence Learning in Repeated Games Conclusion Conclusion: What Do We Know, and Where Do We Go? Summary of Results Simple Bargaining Games Mixed-Strategy Equilibria Bargaining Iterated Dominance Learning Coordination Signaling Top Ten Open Research Questions 473 Appendix: Design Details 477 Re ferences 49 7 Index 535

Emanuela Carbonara. 31 January University of Bologna - Department of Economics

Emanuela Carbonara. 31 January University of Bologna - Department of Economics Game Theory, Behavior and The Law - I A brief introduction to game theory. Rules of the game and equilibrium concepts. Behavioral Games: Ultimatum and Dictator Games. Entitlement and Framing effects. Emanuela