Abstract
Standard game theory cannot explain the selection of payoff-dominant outcomes that are best for all players in common-interest games. Theories of team reasoning can explain why such mutualistic cooperation is rational. They propose that teams can be agents and that individuals in teams can adopt a distinctive mode of reasoning that enables them to do their part in achieving Pareto-dominant outcomes. We show that it can be rational to play payoff-dominant outcomes, given that an agent group identifies. We compare team reasoning to other theories that have been proposed to explain how people can achieve payoff-dominant outcomes, especially with respect to rationality. Some authors have hoped that it would be possible to develop an argument that it is rational to group identify. We identify some large—probably insuperable—problems with this project and sketch some more promising approaches, whereby the normativity of group identification rests on morality.
Highlights
Game theory is used to explain people’s choices, it both predicts behaviour in strategic situations and provides normative standards for rational play
There is a vast literature on cooperation, most of it focused on the Prisoner’s Dilemma, where unilateral defection yields a higher payoff than joint cooperation, so the Nash equilibrium is Pareto-dominated
If we are prepared to relax the standard assumption of perfect rationality, that players maximize their utilities given their beliefs, which are correct in equilibrium, or the assumption that the players have common knowledge of each other’s rationality, it is not difficult to construct theories that can explain the choice of payoff-dominant outcomes
Summary
Game theory is used to explain people’s choices, it both predicts behaviour in strategic situations and provides normative standards for rational play. It fails completely in certain elementary cases. Standard game theory seems powerless to explain the phenomenon where people choose payoff-dominant outcomes in games. There is a vast literature on cooperation, most of it focused on the Prisoner’s Dilemma, where unilateral defection yields a higher payoff than joint cooperation, so the Nash equilibrium is Pareto-dominated. An interesting and arguably more basic problem is how players coordinate on mutually beneficial equilibria in common interest games, where there is a unique outcome whose payoffs strictly Pareto dominate all other outcomes in the game (Aumann and Sorin 1989). It seems obvious that mutualistic cooperation to achieve the Pareto dominant
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