Recent neuroeconomic studies challenge the conventional economic logic of behavior. After an introduction to some starting points of brain research in ‘classical’ economics we discuss the final and contingent causes of rational and irrational behavior in neuroeconomics and standard economics and present the concept of expanded rationality models (ERM) which imports neuroeconomic elements like emotions, beliefs and neuroscientific constraints and exports improved testable predictions. The typical structure of neuroeconomic proof of economic models and the imprecise neuroscientific measurement let us suggest (...) a feed-back structure of economic research. We apply Hirshleifer’s conception of macro-/micro-technology and contrast it to the neuroeconomic black box critique on economic theory. Furthermore, instead of direct adjustment of preference structures we propose the auxiliary creation of neuroeconomic constraints like action-dependent or outcome-dependent neuroeconomic belief constraints (NBC) and emotion compatibility constraints (ECC). This prepares the ground for our examination of neuroeconomics and ERM as two different paths towards an analytical unification of behavioral sciences. (shrink)

The book is addressed to all readers interested in cognitive science, and especially in research combining a logical analysis with psychological, linguistic and neurobiological approaches. The publication is the result of a collaboration between the Department of Cognitive Science at University of Lodz and the Department of Cognitive Science at Lund University. It is intended to provide a comprehensive presentation of the key research issues undertaken in both Departments, including considerations on meaning, natural language and reasoning, linguistic as well as (...) numerical competence, the theory of decision making, modelling of conceptual representations, cognitive and game theoretic approach to social interactions. (shrink)

This volume concerns Rational Agents - humans, players in a game, software or institutions - which must decide the proper next action in an atmosphere of partial information and uncertainty. The book collects formal accounts of Uncertainty, Rationality and Agency, and also of their interaction. It will benefit researchers in artificial systems which must gather information, reason about it and then make a rational decision on which action to take.

Charles Sanders Peirce was one of the United States’ most original and profound thinkers, and a prolific writer. Peirce’s game theory-based approaches to the semantics and pragmatics of signs and language, to the theory of communication, and to the evolutionary emergence of signs, provide a toolkit for contemporary scholars and philosophers. Drawing on unpublished manuscripts, the book offers a rich, fresh picture of the achievements of a remarkable man.

Communication and content presents a comprehensive and foundational account of meaning based on new versions of situation theory and game theory. The literal and implied meanings of an utterance are derived from first principles assuming little more than the partial rationality of interacting agents. New analyses of a number of diverse phenomena – a wide notion of ambiguity and content encompassing phonetics, syntax, semantics, pragmatics, and beyond, vagueness, convention and conventional meaning, indeterminacy, universality, the role of truth in communication, semantic (...) change, translation, Frege’s puzzle of informative identities – are developed. Communication, speaker meaning, and reference are defined. Frege’s context and compositional principles are generalized and reconciled in a fixed-point principle, and a detailed critique of Grice, several aspects of Lewis, and some aspects of the Romantic conception of meaning are offered. Connections with other branches of linguistics, especially psycholinguistics, sociolinguistics, historical linguistics, and natural language processing, are explored. -/- The book will be of interest to scholars in philosophy, linguistics, artificial intelligence, and cognitive science. It should also interest readers in related fields like literary and cultural theory and the social sciences. (shrink)

The Prisoner's Dilemma (PD) exhibits a tragedy in this sense: if the players are fully informed and rational, they are condemned to a jointly dispreferred outcome. In this essay I address the following question: What feature of the PD's payoff structure is necessary and sufficient to produce the tragedy? In answering it I use the notion of a trembling-hand equilibrium. In the final section I discuss an implication of my argument, an implication which bears on the persistence of the problem (...) posed by the PD. (shrink)

Maher (1992b) advances an objection to dynamic Dutch-book arguments, partly inspired by the discussion in Levi (1987; in particular by Levi's case 2, p. 204). Informally, the objection is that the decision maker will "see the dutch book coming" and consequently refuse to bet, thus escaping the Dutch book. Maher makes this explicit by modeling the decision maker's choices as a sequential decision problem. On this basis he claims that there is a mistake in dynamic coherence arguments. There is really (...) no formal mistake in classical dynamic coherence arguments, but the discussions in Maher and Levi do suggest interesting ways in which the definition of dynamic coherence might be strengthened. Such a strengthened "sequentialized" notion of dynamic coherence is explored here. It so happens that even on the strengthened standards for a Dutch book, the classic dynamic coherence argument for conditioning still goes through. (shrink)

Game trees (or extensive-form games) were first defined by von Neumann and Morgenstern in 1944. In this paper we examine the use of game trees for representing Bayesian decision problems. We propose a method for solving game trees using local computation. This method is a special case of a method due to Wilson for computing equilibria in 2-person games. Game trees differ from decision trees in the representations of information constraints and uncertainty. We compare the game tree representation and solution (...) technique with other techniques for decision analysis such as decision trees, influence diagrams, and valuation networks. (shrink)

The paper begins by providing a game-theoretic reconstruction of Gilbert’s (1989) philosophical critique of Lewis (1969) on the role of salience in selecting conventions. Gilbert’s insight is reformulated thus: Nash equilibrium is insufficiently powerful as a solution concept to rationalize conventions for unboundedly rational agents if conventions are solutions to the kinds of games Lewis supposes. Both refinements to NE and appeals to bounded rationality can plug this gap, but lack generality. As Binmore (this issue) argues, evolutive game theory readily (...) explains the origin of conventional behavior, but that is not Lewis’s project. Gilbert’s critique is generalized by reference to Bacharach’s (2006) work on team reasoning in games. The paper then argues that although Lewis’s account of the rationalization of conventions is shown by the reconstruction of Gilbert’s critique to be incomplete, Gilbert is wrong to conclude that classical (‘eductive’) game theory lacks the resources to explain conformity to conventions among people. A game-theoretic account of the dynamics of socialization, based on Ross’s (2005, 2006) idea of ‘game determination’, rationalizes choices of conventional strategies in overlapping generations contexts, provided agents are products of evolutionary selection and know that other players are also such products. (shrink)

Minimizing the costs that others impose upon oneself and upon those in whom one has a fitness stake, such as kin and allies, is a key adaptive problem for many organisms. Our ancestors regularly faced such adaptive problems. One solution to this problem is to impose retaliatory costs on an aggressor so that the aggressor and other observers will lower their estimates of the net benefits to be gained from exploiting the retaliator in the future. We posit that humans have (...) an evolved cognitive system that implements this strategy which we conceptualize as a revenge system. The revenge system produces a second adaptive problem: losing downstream gains from the individual on whom retaliatory costs have been imposed. We posit, consequently, a subsidiary computational system designed to restore particular relationships after cost-imposing interactions by inhibiting revenge and motivating behaviors that signal benevolence for the harmdoer. The operation of these systems depends on estimating the risk of future exploitation by the harmdoer and the expected future value of the relationship with the harmdoer. We review empirical evidence regarding the operation of these systems, discuss the causes of cultural and individual differences in their outputs, and sketch their computational architecture. (shrink)

Mainstream game theory explains cooperation as the outcome of the interaction of agents who permanently pursue their individual goals. Amartya Sen argues instead that cooperation can only be understood by positing a type of rule-following behaviour that can be out of phase with the pursuit of individual goals, due to the existence of a collective identity. However, Sen does not clarify the ontological preconditions for the type of social behaviour he describes. I will argue that Sen's account of collective identity (...) can be best interpreted in the light of John Searle's notion of collective intentionality, while Sen's explanation of rule-following behavior and agency is best understood using the critical realist transformational model of social activity. (shrink)

I carved a massive cake of beeswax into bits and rolled them in my hands until they softened … Going forward I carried wax along the line, and laid it thick on their ears. They tied me up, then, plumb amidships, back to the mast, lashed to the mast, and took themselves again to rowing. Soon, as we came smartly within hailing distance, the two Sirens, noting our fast ship off their point, made ready, and they sang … The lovely (...) voices in ardor appealing over the water made me crave to listen, and I tried to say ‘Untie me!’ to the crew, jerking my brows; but they bent steady to the oars. (shrink)

This paper examines the notion that delay in reaching agreement in bargaining may be caused by learning that is independent of the bargaining procedure. In particular, learning is not due to inference from the observed offers and responses of the opponent, but derives from observation of an exogenous, costly signal – we call this 'investigation'. First we observe that even if learning is costless and perfectly informative, investigation may not occur in equilibrium. Under more general conditions, however, uninformed agents typically (...) have an incentive to try to manipulate their prior beliefs through investigation. The main result is that investigation by an uninformed agent may result in significant delay occurring before agreement is reached. We show that this delay may be sustained in the limit as the length of time period vanishes, and that this result depends crucially on the properties of the information production technology underlying investigation. Also, the delay we observe is shown to be robust to changes in the bargaining procedure. (shrink)

This paper suggests that Nash equilibrium can be interpreted as a conceptual tool for addressing comparative-statics issues on an aggregate level. Together with additional assumptions, Nash equilibrium helps generate testable predictions about changes or differences of behavior induced by changes or differences of exogenous variables. However, Nash-equilibrium behavior, as such, is not subject to empirical testing. Instead, widespread and persistent behavior is modeled as a Nash equilibrium by assumption. The paper argues that this interpretation is in line with the traditional (...) use of an equilibrium concept in price theory. The suggested interpretation is illustrated with the model of public-goods provision. The paper compares this interpretation of Nash equilibrium with other interpretations and discusses its limits. (shrink)

For the past 20 years or so the literature on noncooperative games has been centered on the search for an equilibrium concept that expresses the notion of rational behavior in interactive situations. A basic tenet in this literature is that if a “rational solution” exists, it must be a Nash equilibrium. The consensus view, however, is that not all Nash equilibria can be accepted as rational solutions. Consider, for example, the game of Figure 1.

This paper combines a survey of existing literature in game-theoretic pragmatics with new models that fill some voids in that literature. We start with an overview of signaling games with a conflict of interest between sender and receiver, and show that the literature on such games can be classified into models with direct, costly, noisy and imprecise signals. We then argue that this same subdivision can be used to classify signaling games with common interests, where we fill some voids in (...) the literature. For each of the signaling games treated, we show how equilibrium-refinement arguments and evolutionary arguments can be interpreted in the light of pragmatic inference. (shrink)

Often in insurance decision making, there are risk factors on which the insurer has an informational advantage over the consumer. But when the insurer sets and posts a premium for the consumer to consider, the consumer can potentially use the premium as an informational cue for the loss probability, and thereby to reduce the insurer’s informational advantage. We study, by means of a behavioral model, how consumers would use the premium as an informational cue in such contexts. The belief formation (...) process in our model assumes that both prior knowledge and the premium might have an impact on the consumer’s estimate of the loss probability. Moreover, the premium impacts the estimate through an anchoring-and-adjustment process. The model potentially leads to violations of rational expectations, with which the consumer overestimates the loss probability beyond what could be inferred from the premium, given the premise that the insurer must seek to break even or earn an expected profit. Our model analysis moreover implies that the frequency of such violations is non-increasing as the premium increases. Last, the model implies a generally inverted-U relationship between insurance demand and the premium so that the demand is upward sloping at low premium levels and downward sloping at high premium levels. A pilot field study and a laboratory experiment provide robust evidence for our model implications and calibrations for its parameters. (shrink)

The backward induction argument purports to show that rational and suitably informed players will defect throughout a finite sequence of prisoner's dilemmas. It is supposed to be a useful argument for predicting how rational players will behave in a variety of interesting decision situations. Here, I lay out a set of assumptions defining a class of finite sequences of prisoner's dilemmas. Given these assumptions, I suggest how it might appear that backward induction succeeds and why it is actually fallacious. Then, (...) I go on to consider the consequences of adopting a stronger set of assumptions. Focusing my attention on stronger sets that, like the original, obey the informedness condition, I show that any supplementation of the original set that preserves informedness does so at the expense of forcing rational participants in prisoner's dilemma situations to have unexpected beliefs, ones that threaten the usefulness of backward induction. (shrink)

We model the evolution of international conflict as a game of sequential decisions and show that arms races are neither necessary nor sufficient for peace or war. Peaceful intentions are not adequate to insure peace, even when both rivals wish to avoid violence. Peaceful intentions together with complete information are sufficient for peace. A preference for forcefully pursuing foreign policy goals also is not sufficient to preclude the peaceful resolution of disputes, and this is true even if there is complete (...) information. In some circumstances, the absence of an arms race can precipitate violence, even giving the military advantage to a nation that unilaterally stopped getting ready for a war it would initiate. Finally, we also show that empirical research is likely to be biased in favor of the hypothesis that deterrence leads to peace. (shrink)

The temporal updating of an agent’s beliefs in response to a flow of information is modeled in a simple modal logic that, for every date t, contains a normal belief operator B t and a non-normal information operator I t which is analogous to the ‘only knowing’ operator discussed in the computer science literature. Soundness and completeness of the logic are proved and the relationship between the proposed logic, the AGM theory of belief revision and the notion of plausibility is (...) discussed. (shrink)

We propose a modal logic based on three operators, representing intial beliefs, information and revised beliefs. Three simple axioms are used to provide a sound and complete axiomatization of the qualitative part of Bayes’ rule. Some theorems of this logic are derived concerning the interaction between current beliefs and future beliefs. Information flows and iterated revision are also discussed.

The article analyses experimental “solidarity games” with two benefactors and one beneficiary. Depending on their motive for giving—e.g., warm glow, altruism, or guilt—the benefactors’ response functions are either constant, decreasing, or increasing. If motives interact, or if envy is a concern, then more complex (unimodal) shapes may emerge. Controlling for random utility perturbations, we determine which and how many motives affect individual decision making. The main findings are that the motives of about 75% of the subjects can be identified fairly (...) sharply, that all of the motives discussed in the literature co-exist in the population, and that for any given individual no more than two motives (out of six motives considered overall) are identified. We conclude that a unifying motive for solidarity cannot be derived even when we allow for individually heterogeneous parameterization: different subjects give for different reasons and all existing social preference theories are partially correct. (shrink)

Game theory has proved a useful tool in the study of simple economic models. However, numerous foundational issues remain unresolved. The situation is particularly confusing in respect of the non-cooperative analysis of games with some dynamic structure in which the choice of one move or another during the play of the game may convey valuable information to the other players. Without pausing for breath, it is easy to name at least 10 rival equilibrium notions for which a serious case can (...) be made that here is the “right” solution concept for such games. (shrink)

This is the second part of a two-part paper. It can be read independently of the first part provided that the reader is prepared to go along with the unorthodox views on game theory which were advanced in Part I and are summarized below. The body of the paper is an attempt to study some of the positive implications of such a viewpoint. This requires an exploration of what is involved in modeling “rational players” as computing machines.

The difficulty of defining rational behavior in game situations is that the players'' strategies will depend on their expectations about other players'' strategies. These expectations are beliefs the players come to the game with. Game theorists assume these beliefs to be rational in the very special sense of beingobjectively correct but no explanation is offered of the mechanism generating this property of the belief system. In many interesting cases, however, such a rationality requirement is not enough to guarantee that an (...) equilibrium will be attained. In particular, I analyze the case of multiple equilibria, since in this case there exists a whole set of rational beliefs, so that no player can ever be certain that the others believe he has certain beliefs. In this case it becomes necessary to explicitly model the process of belief formation. This model attributes to the players a theory of counterfactuals which they use in restricting the set of possible equilibria. If it were possible to attribute to the players the same theory of counterfactuals, then the players'' beliefs would eventually converge. (shrink)

According to decision theory, the rational initial action in a sequential decision-problem may be found by backward induction or folding back. But the reasoning which underwrites this claim appeals to the agent's beliefs about what she will later believe, about what she will later believe she will still later believe, and so forth. There are limits to the depth of people's beliefs. Do these limits pose a threat to the standard theory of rational sequential choice? It is argued, first, that (...) the traditional solutions of certain games depend on knowledge which exceeds depth limits, and that these solutions therefore cannot be shown rational in the usual sense. Then, for that related reason even folding back solutions of one-person problems cannot be! A revision of our notion of rational choice is proposed, analogous to the reliabilist account of knowledge of Goldman and others, by which this paradox is resolved. (shrink)

In this paper we distinguish two competing conceptions of dignity, one recognizably Hobbesian and one recognizably Kantian. We provide a formal model of how decision-makers committed to these conceptions of dignity might reason when engaged in an economic transaction that is not inherently insulting, but in which it is possible for the dignity of the agent to be called into question. This is a modified version of the ultimatum game. We then use this model to illustrate ways in which the (...) Kantian evaluative standpoint enjoys a kind of internal stability that the Hobbesian framework lacks. Our interpersonal argument shows that, under certain conditions, Hobbesians prefer to cultivate Kantian commitments in others and promote the presence of Kantians in the population. Our intrapersonal argument shows that agents who are conflicted between Kantian and Hobbesian commitments have powerful reasons not to resolve this commitment in favour of Hobbesian values. Our emulation argument illustrates that in repeated versions of the ultimatum game, the Hobbesian chooses to behave like a Kantian, including publicly repudiating her Hobbesian commitments. Here again, however, the Hobbesian is able to achieve a desired benefit only on the condition that there are genuine Kantians in the population. Finally, our social planning argument explores the reasons why a community of Hobbesians would opt to enshrine a Kantian conception of dignity into law. The paper concludes with some remarks about the policy implications of this work. The value or worth of a man is, as for all other things, his price, that is to say, so much as would be given for the use of his power; and therefore is not absolute, but a thing dependent on the need and judgement of another... The public worth of a man, which is the value set on him by the Common-wealth, is that which men commonly call DIGNITY. Hobbes, _Leviathan X_, 16. (shrink)

The paper is an addition to the intensionalist approach to decision theory, with emphasis on game theoretic modelling. Extensionality in games is an a priori requirement that players exhibit the same behavior in all algebraically equivalent games on pain of irrationality. Intensionalism denies that it is always irrational to play differently in differently represented but algebraically equivalent versions of a game. I offer a framework to integrate game non-extensionality with the more familiar idea of linguistic non-extensionality from philosophy of language, (...) followed by applications of it based on toy examples of well-known game models. I argue that the notion of what I call “Intensional Nash Equilibrium” is, in effect, very useful in understanding human decision-making. (shrink)

Contents. Introduction. 1. Preliminaries. 2. Normal Form Games. 3. Extensive Games. 4. Applications of Game Theory. 5. The Methodology of Game Theory. Conclusion. Appendix. Bibliography. Index. Does game theory—the mathematical theory of strategic interaction—provide genuine explanations of human behaviour? Can game theory be used in economic consultancy or other normative contexts? Explaining Games: The Epistemic Programme in Game Theory—the first monograph on the philosophy of game theory—is an attempt to combine insights from epistemic logic and the philosophy of science to (...) investigate the applicability of game theory in such fields as economics, philosophy and strategic consultancy. I prove new mathematical theorems about the beliefs, desires and rationality principles of individual human beings, and explore in detail the logical form of game theory as it is used in explanatory and normative contexts. I argue that game theory reduces to rational choice theory if used as an explanatory device, and that game theory is nonsensical if used as a normative device. A provocative account of the history of game theory reveals that this is not bad news for all of game theory, though. Two central research programmes in game theory tried to find the ultimate characterisation of strategic interaction between rational agents. Yet, while the Nash Equilibrium Refinement Programme has done badly thanks to such research habits as overmathematisation, model-tinkering and introversion, the Epistemic Programme, I argue, has been rather successful in achieving this aim. "The 'epistemic' approach to game theory has emerged over the past twenty-five years. What is this approach? How does it differ from the conventional equilibrium-based approach to game theory? What have been its strengths and weaknesses to date? To find out, read this comprehensive and excellently written account". Adam Brandenburger, J. P. Valles Professor of Business Economics and Strategy, Stern School of Business, New York University "Reading Boudewijn de Bruin's book should be rewarding both for game theorists interested in the conceptual foundations of their discipline and for philosophers who want to learn more about formal analysis of strategic interaction. It provides an in-depth logical study of the currently dominant epistemic approaches to non-cooperative games, with an eye both to the attractions and to the serious challenges facing the Epistemic Programme". Wlodek Rabinowicz, Professor of Practical Philosophy, Department of Philosophy, Lund University . (shrink)

The paper is essentially a short version Spohn "Strategic Rationality" which emphasizes in particular how the ideas developed there may be used to shed new light on the iterated prisoner's dilemma (and on iterated Newcomb's problem).

The paper argues that the standard decision theoretic account of strategies and their rationality or optimality is much too narrow, that strategies should rather condition future action to future decision situations (a point of view already developed in my Grundlagen der Entscheidungstheorie, sect. 4.4), that practical deliberation must therefore essentially rely on a relation of superiority and inferiority between possible future decision situations, that all this allows to substantially broaden the theory of practical rationality, that a long list of points (...) attended to in the literature can be subsumed under the broadened perspective (including a novel view on the iterated prisoner's dilemma and on iterated Newcomb's problem, which, however, is revised in Spohn (2003) "Dependency Equilibria and the Causal Structure of Decision and Game Situation"), and that the task to complete and systematize this list indeed forms a fruitful research programme. (shrink)