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date: 22 February 2020

Abstract and Keywords

Until recently, game theory was not focused on cognitively plausible models of choices in human strategic interactions. This chapter describes two new approaches that do so. The first approach, cognitive hierarchy modeling, assumes that players have different levels of partially accurate representations of what others are likely to do, which vary from heuristic and naïve to highly sophisticated and accurate. There is reasonable evidence that this approach explains choices (better than traditional equilibrium analysis) in dozens of experimental games and some naturally occurring games (e.g., a Swedish lottery, auctions, and consumer reactions to undisclosed quality information about movies). Measurement of eye tracking and functional magnetic resonance imaging (fMRI) activity during games is also suggestive of a cognitive hierarchy. The second approach, psychological games, allows value to depend upon choice consequences and on beliefs about what will happen. This modeling framework can link cognition and emotion, and express social emotions such as “guilt.” In a psychological game, guilt is modeled as the negative emotion of knowing that another person is unpleasantly surprised that your choice did not benefit her (as she had expected). Our hope is that these new developments in a traditionally cognitive field (game theory) will engage interest of psychologists and others interested in thinking and social cognition.

Keywords: bounded rationality, cognitive hierarchy, emotions, game theory, psychological games, strategic neuroscience

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