Lecture 5 - game theory, experimental economics, neuroeconomics

Question 1

game theory

Answer 1

• how one can analyze (social) decision making situations
• offers models and predictions for investigating social interaction
• used to understand and explain situations where decision makers’ choices are independent (e.g. guessing contest, negotiations..)
• uses language of mathematics
• introduced by Neumann and Morgenstern in 1944

Question 2

social neuroeconomics

Answer 2

-in search for neural correlates of (social) behavior

Question 3

basic ingredients in game theory

Answer 3

• the (number of) players
• the rules of the game
• the payoff functions: linking strategies (choices) with payoffs
• > example: 20$ when closest to 1/2 average of all guessed numbers , o$ otherwise
• > energy/time saved when free-riding on others’ solutions, satisfaction when finding solution without help

-> payoff depends on own and others’ strategies!

Question 4

Nash equilibrium

Answer 4

• a situation where no one has a unilateral incentive (Anreiz) to change strategy
• each player is assumed to know the equilibrium strategies of the other players

Question 5

what number should one guess?

• game theoretical analysis
• Nash equilibrium

Answer 5

-iterated (wiederholen) elimination of weakly dominated strategies
-> what numbers should one never guess?
-> choose 0 -> Nash equilibrium -> everyone has ‘closest’ number to 0 -> winner is drawn by chance
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Question 6

common knowledge of rationality and actual behavior

Answer 6

• common knowledge of rationality:
• assuming everybody is rational and everybody knows that everybody is rational
• > this is not an easy task

Question 7

actual behavior - guessing game lecture

Answer 7

-numbers chosen go closer to 0 with the second round

Question 8

level - k thinking model

-model of boundedly rational behavior

Answer 8

• player forms expectation of what others will do
• trying to be ‘one step ahead of them’
• > using theory of mind

example: 1/2 guessing game
- form expectations of average of others
- choose 1/2 of this average

Question 9

guessing game and theory of mind

Answer 9

• exploring the role of mentalizing in (boundedly) rational strategic thinking
• understanding motives, strategies of the other

Question 10

level 0 player

Answer 10

-chooses randomly

Question 11

level 1 /2 player

Answer 11

?

Question 12

Level k-thinking - neural representation

low vs high level reasoners

Answer 12

• Low level: rostral anterior cingulate cortex (rACC)
• > self -referential thinking
• High-level: medial prefrontal cortex (mPFC), ventral mPFC
• > theory of mind, mentalizing

Question 13

theory of mind

Answer 13

• ability to attribute mental states (beliefs, intents, desires, emotions, knowledge, etc.) to oneself, and to others
• understand that others have beliefs, desires, intentions, and perspectives that are different from one’s own

Question 14

ultimatum game

Answer 14

• one player proposes, one responds
• one can make a fair or unfair offer
• the other can accept or reject
• both earnings depend on fair/unfair and accept/reject
• > payoffs is not necessarily money
• > in economics important concept of utility
• utility -> hedonic value/pleasure from consumption
• an additional $ may not give the same extra utility to everyone
• not good to actually check fair mindedness
• > dictator game says more about that

Question 15

brain areas for fairness and greed

Answer 15

-left and right dorsolateral PFC

Question 16

disruption of rDLPFC ….

Answer 16

• decreases rejection rates of unfair offers
• does not influence fairness judgment
• no significant difference when playing against computer