On Sympathy and Games

Abstract

Standard game theory turns a blind eye toward social interaction between the players in a game. Hence, a given game offers the same set of equilibria regardless of the identities of the players and the specifics of the social context. The predictive value of game theory is severely limited as a result. This paper provides a formal treatment of games set in a context of social interaction. Based on the original insights of Adam Smith and other political economists and social psychologists, the innate human quality of sympathy is examined. The effect of sympathy in a game may be to transform the payoffs and lead to quite different choices in a setting of face-to-face play, play among friends, and play after finding interpersonal similarities.

Keyword(s): Sympathy; Game theory; Prisoners' dilemma game; Cooperation; Social interaction

JEL Classification: C70; C72; D00