Iterated regret minimization: A new solution concept

Abstract

For some well-known games, such as the Travelerʼs Dilemma or the Centipede Game, traditional game-theoretic solution concepts—most notably Nash equilibrium—predict outcomes that are not consistent with empirical observations. We introduce a new solution concept, iterated regret minimization, that exhibits the same qualitative behavior as that observed in experiments in many games of interest, including Travelerʼs Dilemma, the Centipede Game, Nash bargaining, and Bertrand competition. As the name suggests, iterated regret minimization involves the iterated deletion of strategies that do not minimize regret.