Behavioural Game Theory Flashcards
What is Behavioural Game Theory (Camerer, 2003)?
It studies how people actually behave in strategic settings, challenging standard assumptions like perfect rationality, full information, and instant equilibrium. It incorporates bounded rationality, social preferences, and learning.
What did Goeree & Holt (2001) show with the Travellers’ Dilemma?
In the Travellers’ Dilemma, game theory predicts choosing the lowest value (e.g., 180). However, most people pick higher numbers unless the reward for undercutting (R) is very large. Prediction success is highly sensitive to R, showing limits of strict rational choice assumptions.
What is the Minimum Effort Coordination Game (Goeree & Holt, 2001) and its findings?
In this game, players coordinate on effort levels. Game theory predicts any common effort level is a Nash equilibrium. Empirically, low cost leads to high effort, and high cost leads to low effort — contradicting the indifference predicted by theory.
What is a Quantal Response Equilibrium?
An equilibrium concept where players make noisy best responses: actions with higher expected payoffs are chosen with higher probability. It relaxes the assumption of perfect best response and explains stochastic behaviour in mixed strategy games.
What is Level-k reasoning?
Players reason in levels: Level-0 chooses randomly, Level-1 best responds to Level-0, Level-2 to Level-1, etc. Explains behaviour in games where players make a limited number of reasoning steps.
What are Cognitive Hierarchy Models?
These models assume players best respond to a mix of lower-level thinkers. For example, Level-2 players respond to estimated distributions of Level-0 and Level-1 players. Average reasoning depth is often about 1.5 steps.
What is Team Reasoning?
Rather than acting individually, players consider what would be best if everyone followed a collective strategy. Explains cooperative behaviour in games like Prisoners’ Dilemma beyond narrow self-interest.
What did Crawford et al. (2008) find about focal points and coordination?
Label salience (e.g. ‘X’) improves coordination in symmetric games. But even small payoff asymmetries undermine focal point power. Mis-coordination patterns shift as asymmetry grows, often explained by Level-k reasoning.
What is the Centipede Game and what does it reveal?
Players take turns choosing to take or pass. Backward induction predicts early take (rational, but Pareto-inefficient). Empirically, players pass for longer, showing limited steps of reasoning and belief in cooperation.
What is the Beauty Contest Game and what does it test?
Players guess a number between 0–100 closest to 2/3 of the average guess. Rational players should guess 0. Empirical results show most use 1–2 steps of iteration (e.g., guessing 33 or 22).
What are learning mechanisms in Behavioural Game Theory?
Players adapt strategies over repeated games via reinforcement, belief learning (like fictitious play), or Experience-Weighted Attraction (EWA), which combines belief and reinforcement learning.
How does evolutionary game theory relate to learning?
It models long-run strategy evolution via natural selection. Strategies that yield higher payoffs survive, offering a biological basis for boundedly rational behaviour and social preferences.
