Evidential Equilibria: Heuristics and Biases in Static Games of Complete Information
Games, Vol. 6(4), p. 637-676, Nov. 2015
40 Pages Posted: 28 Sep 2016
Date Written: November 16, 2015
Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence from a large number of static games, including the prisoners’ dilemma game, the hawk-dove game, voting games, public goods games and oligopoly games. Under uncertainty about what others will do in one-shot games, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like-minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept: evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We illustrate these concepts in the context of the prisoners’ dilemma game.
Keywords: Evidential Reasoning, Game Theory, Cognitive Bias, Prisoners' Dilemma Game
JEL Classification: D03, C7
Suggested Citation: Suggested Citation