What to Maximize If You Must

44 Pages Posted: 17 Feb 2003

See all articles by Aviad Heifetz

Aviad Heifetz

Open University of Israel - Department of Economics and Management

Chris Shannon

University of California, Berkeley - Department of Economics

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Date Written: October 20, 2002

Abstract

The assumption that decision makers choose actions to maximize their preferences is a central tenet in economics. This assumption is often justified either formally or informally by appealing to evolutionary arguments. In contrast, this paper shows that in almost every game, payoff maximization cannot be justified by appealing to such arguments. We show that in almost every game, for almost every distortion of a player's actual payoffs, some extent of this distortion is beneficial to the player because of the resulting effect on opponents' play. Consequently, such distortions will not be driven out by any evolutionary process involving payoff-monotonic selection dynamics, in which agents with higher actual payoffs proliferate at the expense of less successful agents. In particular, under any such selection dynamics, the population will not converge to payoff-maximizing behavior. We also show that payoff-maximizing behavior need not prevail even when preferences are imperfectly observed.

Keywords: Dispositions, evolution of preferences, genericity, selection dynamics, imperfect observability

JEL Classification: C72, C73

Suggested Citation

Heifetz, Aviad and Shannon, Chris and Spiegel, Yossi, What to Maximize If You Must (October 20, 2002). Available at SSRN: https://ssrn.com/abstract=348500 or http://dx.doi.org/10.2139/ssrn.348500

Aviad Heifetz

Open University of Israel - Department of Economics and Management ( email )

108 Ravutski st.
P.O. B. 808
Raanana, 43107
Israel
+972 9 778 1878 (Phone)
+972 9 778 0668 (Fax)

HOME PAGE: http://www.openu.ac.il/Personal_sites/Aviad-Heifetz.html

Chris Shannon

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Yossi Spiegel (Contact Author)

Tel Aviv University, Coller School of Management ( email )

Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-9063 (Phone)
972-3-640-7739 (Fax)

HOME PAGE: http://www.tau.ac.il/~spiegel

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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