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

See all articles by Ali al-Nowaihi

Ali al-Nowaihi

University of Leicester - Department of Economics

Sanjit Dhami

University of Leicester

Date Written: November 16, 2015

Abstract

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

al-Nowaihi, Ali and Dhami, Sanjit, Evidential Equilibria: Heuristics and Biases in Static Games of Complete Information (November 16, 2015). Games, Vol. 6(4), p. 637-676, Nov. 2015, Available at SSRN: https://ssrn.com/abstract=2844471 or http://dx.doi.org/10.2139/ssrn.2844471

Ali Al-Nowaihi

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Sanjit Dhami (Contact Author)

University of Leicester ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www2.le.ac.uk/departments/economics/people/sdhami

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