Article

A Survey of Psychological Games: Theoretical Findings and Experimental Evidence

LERNA, University of Toulouse, Working Papers 01/2008;
Source: RePEc

ABSTRACT I modify the uniform-price auction rules in allowing the seller to ration bidders. This allows me to provide a strategic foundation for underpricing when the seller has an interest in ownership dispersion. Moreover, many of the so-called "collusive-seeming" equilibria disappear.

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    ABSTRACT: In the theory of psychological games it is assumed that players' preferences on material consequences depend on endogenous beliefs. Most of the applications of this theoretical framework assume that the psychological utility functions representing such preferences are common knowledge. But this is often unrealistic. In particular, it cannot be true in experimental games where players are subjects drawn at random from a population. Therefore an incomplete-information methodology is called for. We take a first step in this direction, focusing on models of guilt aversion in the Trust Game. We consider two alternative modeling assumptions: (i) guilt aversion depends on the role played in the game, because only the "trustee" can feel guilt for letting the co-player down, (ii) guilt aversion is independent of the role played in the game. We show how the set of Bayesian equilibria changes as the upper bound on guilt sensitivity varies, and we compare this with the complete-information case. Our analysis illustrates the incomplete-information approach to psychological games and can help organize experimental results in the Trust Game. JEL classification: C72, C91, D03. Keywords: Psychological games, Trust Game, guilt, incomplete information.
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    ABSTRACT: The motivation of decision makers who care for various emotions, intentions-based reciprocity, or the opinions of others may depend directly on beliefs (about choices, beliefs, or information). Geanakoplos, Pearce and Stacchetti [J. Geanakoplos, D. Pearce, E. Stacchetti, Psychological games and sequential rationality, Games Econ. Behav. 1 (1989) 60-79] point out that traditional game theory is ill-equipped to address such matters, and they pioneer a new framework which does. However, their toolbox - psychological game theory - incorporates several restrictions that rule out plausible forms of belief-dependent motivation. Building on recent work on dynamic interactive epistemology, we propose a more general framework. Updated higher-order beliefs, beliefs of others, and plans of action may influence motivation, and we can capture dynamic psychological effects (such as sequential reciprocity, psychological forward induction, and regret) that were previously ruled out. We develop solution concepts, provide examples, explore properties, and suggest avenues for future research.
    Journal of Economic Theory. 01/2009; 144(1):1-35.
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