Behavioural Game Theory

Abstract

Behavioural game theory uses experimental regularities and psychology to model formally how limits on strategic thinking, learning, and social preferences interact when people actually play games. Emerging theories of behaviour in ultimatum and trust games (and others) focus on an aversion to inequality, reciprocity, or concern for social image. Learning models often focus on numerical updating of an unobserved propensity to choose a strategy (including fictitious play updating of beliefs as a special case). Models of limits on strategic thinking assume players are in equilibrium, but respond with error, or there is a cognitive hierarchy of increasingly sophisticated reasoning.KeywordsAdaptive expectationsAltruismAnalytical game theoryAuctionsBehavioural game theoryBounded rationalityCognitive hierarchy theoriesCommunicationCompetitionContractingCoordinationDictator gamesDirection learningDisequilibrium behaviourEntry deterrence gamesExperience weighted attractionIndividual learning in gamesInequality aversionLearningMixed strategy equilibriumMoral hazardNegative reciprocityQuantal response equilibriumRational expectationsRawls, J.ReciprocityReplicator dynamicsSelf-interestSignallingSocial preferencesTit for tatTrust gamesUltimatum gamesUtilitarianismWeighted fictitious playJEL ClassificationsC7