70-386 Behavioral Decision Making

1. 70-386Behavioral Decision Making Lecture 15: Behavioral Game Theory II

2. Paper presentation

3. Administrative • Scanned GT readings are online • Reading for Thursday posted: WEIRD • Longer pdf than actual reading. Main text is p61-82 (still not short) • Quiz Thursday • Paper Presentation Sunday after Eid • Post-Eid: Nudges. • Assignment: either (or ideally both) • Look at QNV 2030 and find a specific example of where content of the course might be applicable • Think of a policy issue, preferably in Qatar or possibly in your home country, where the course content might be applicable.

4. Last time • Dictator game • Thought to measure subjects altruistic preferences. • Ultimatum game • Used to measure “negative reciprocity” • Trust game • Used to measure “positive reciprocity” • Centipede game • Examines backward induction ability

5. Beauty Contest No talking. • Your objective in this game is to guess a number between 0 and 100 (inclusive). • Which number are you trying to guess? 2/3’s of the average of everyone else’s guess. • The person who comes the closes to 2/3’s of the average will receive 100 points. If there is an n-waytie then, you those players will receive 100/n points.

6. Results – round 1 • What did you guess? • Let’s play this one more time. • Same rules: guess between [0,100] and 2/3’s of the average of the guesses gets 100 points.

7. Results • In round 2, what did you guess? • What do other people guess: • Experiment ran in a newspaper, two weeks to decide, different kinds of subjects • Average: 23.08 • Learning behavior: average guesses drop over time (how much depends on the ratio given (in this example 2/3’s, but could be ½, ¾, 1/8th,etc.)

8. P-beauty contests • These guessing games are known as beauty contest games • Due to Keynes: • Fictional newspaper contest where entrants are asked to choose the six prettiest faces from a hundred photographs. Those who picked the most popular faces are then eligible for a prize. • Do you pick those that are the prettiest to you? • Do you pick those that you think are the prettiest to everyone else? • Do you pick those that you think other people think are the prettiest to everyone else? • What is the Nash equilibrium? • Zero. • Why do people not play it? • No idea about equilibrium behavior • Rational but don’t think others are rational.

9. More Simultaneous-move Games • What do we mean by “equilibrium?” • Likely outcome of a game when rational strategic agents interact • Each player is playing his/her best strategy given the strategy choices of all other players • No player has an incentive to change his or her strategy unilaterally Mutual best response. • Not necessarily the best outcome for both players.

10. PAYOFFS Strategic Form Representation PLAYERS STRATEGIES

11. PAYOFFS Strategic Form Representation PLAYERS STRATEGIES PAYOFFS

12. Equilibrium Selection • With multiple equilibria we face a very difficult problem of selection:

13. Equilibrium Selection • With multiple equilibria we face a very difficult problem of selection: • Imagine Harry had different preferences:

14. Equilibrium Selection • With multiple equilibria we face a very difficult problem of selection: • Imagine Harry had different preferencesand could send a message to Sally?

15. Stag Hunt Games • Last simultaneous move game:

16. Stag Hunt Games • 2 equilibria in pure strategies: • <Stag, Stag>: payoff dominant • <Hare, Hare>: risk dominant