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The Bounds of Reason

The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences

Herbert Gintis
Copyright Date: 2009
Edition: REV - Revised
Pages: 288
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  • Book Info
    The Bounds of Reason
    Book Description:

    Game theory is central to understanding human behavior and relevant to all of the behavioral sciences-from biology and economics, to anthropology and political science. However, asThe Bounds of Reasondemonstrates, game theory alone cannot fully explain human behavior and should instead complement other key concepts championed by the behavioral disciplines. Herbert Gintis shows that just as game theory without broader social theory is merely technical bravado, so social theory without game theory is a handicapped enterprise. This edition has been thoroughly revised and updated.

    Reinvigorating game theory,The Bounds of Reasonoffers innovative thinking for the behavioral sciences.

    eISBN: 978-1-4008-5134-8
    Subjects: Economics, Mathematics, Sociology, Psychology

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-x)
  3. Preface
    (pp. xi-xviii)
  4. 1 Decision Theory and Human Behavior
    (pp. 1-32)

    Decision theory is the analysis of the behavior of an individual facing nonstrategic uncertainty—that is, uncertainty that is due to what we term “Nature” (a stochastic natural event such as a coin flip, seasonal crop loss, personal illness, and the like) or, if other individuals are involved, their behavior is treated as a statistical distribution known to the decision maker. Decision theory depends on probability theory, which was developed in the seventeenth and eighteenth centuries by such notables as Blaise Pascal, Daniel Bernoulli, and Thomas Bayes.

    Arational actoris an individual withconsistent preferences(§1.1). A rational actor...

  5. 2 Game Theory: Basic Concepts
    (pp. 33-47)

    Anextensive form game${\cal {G}}$consists of a number ofplayers, agame tree, and a set ofpayoffs. A game tree consists of a number ofnodesconnected bybranches. Each branch connects ahead nodeto a distincttail node. Ifbis a branch of the game tree, we denote the head node ofbbybh, and the tail node ofbbybt.

    Apathfrom nodeto nodein the game tree is a connected sequence of branches starting ataand ending at.¹ If there is a path from node...

  6. 3 Game Theory and Human Behavior
    (pp. 48-85)

    Game theory is multiplayer decision theory where the choices of each player affect the payoffs to other players, and the players take this into account in their choice behavior. In this chapter we address the contribution of game theory to the design of experiments aimed at understanding the behavior of individuals engaged in strategic interaction. We call thisbehavioral game theory.

    Game theory is a general lexicon that applies to all life forms. Strategic interaction neatly separates living from nonliving entities and defines life itself. Strategic interaction is the sole concept commonly used in the analysis of living systems that...

  7. 4 Rationalizability and Common Knowledge of Rationality
    (pp. 86-105)

    The success of economic theory is based on the rational actor model. The inability of other behavioral science disciplines, including psychology, anthropology, and sociology, to develop an analytical core follows from their rejection of this model (see chapter 11). A serious critique of the rational actor model does not, to my knowledge, exist. Rather, critics generally overinterpret or misinterpret the concept of Bayesian rationality, and then find fault with their distorted creations. Curiously, they are abetted in this endeavor by the widespread willingness of economists themselves to overclaim and misrepresent the implications of the rationality assumption. My strategy inThe...

  8. 5 Extensive Form Rationalizability
    (pp. 106-122)

    The extensive form of a game is informationally richer than the normal form since players gather information that allows them to update their subjective priors as the game progresses. For this reason, the study of rationalizability in extensive form games is more complex than the corresponding study in normal form games. There are two ways to use the added information to eliminate strategies that would not be chosen by a rational agent: backward induction and forward induction. The latter is relatively exotic (although more defensible) and is analyzed in Gintis (2009b). Backward induction, by far the most popular technique, employs...

  9. 6 The Logical Antinomies of Knowledge
    (pp. 123-130)

    The critique of common knowledge of rationality (CKR) developed in the preceding chapters should convince researchers interesting in explaining social reality simply to avoid the concept. Among the implication of dropping CKR is that rationalizability in normal form games and subgame perfection in extensive form games must be justified, when they are indeed justifiable, by other arguments. The actual cost of abandoning CKR in terms of explaining social behavior is minimal because the Nash equilibrium concept itself is problematic when the recursive nature of interagent beliefs is important (§9.3.3) and the correlated equilibrium is by far the more cogent equilibrium...

  10. 7 The Mixing Problem: Purification and Conjectures
    (pp. 131-141)

    Economic theory stresses that a proposed mechanism for solving a coordination problem assuming self-regarding agents is plausible only if it isincentive compatible: each agent should find it in his interest to behave as required by the mechanism. However, a strictly mixed-strategy Nash equilibriumσ* = (σ₁*, … ,σn*) fails to be incentive compatible, because a self-regarding agentiis indifferent to any mixed strategy in the support of σi*. This chapter deals with the solution to this problem. We conclude that, while ingenious justifications of the incentive compatibility of mixedstrategy Nash equilibria have been offered, they fail in...

  11. 8 Bayesian Rationality and Social Epistemology
    (pp. 142-155)

    At least since Schelling (1960) and Lewis (1969), game theorists have interpreted social norms as Nash equilibria. More recent contributions based upon the idea of social norms as selecting among Nash equilibria include Sugden (1986), Elster (1989a,b), Binmore (2005), and Bicchieri (2006). There are two problems with this approach. The first is that the conditions under which rational individuals play a Nash equilibrium are extremely demanding (Theorem §9.4), and are not guaranteed to hold simply because there is a social norm specifying a particular Nash equilibrium. Second, the most important and obvious social norms do not specify Nash equilibria at...

  12. 9 Common Knowledge and Nash Equilibrium
    (pp. 156-173)

    This chapter applies the modal logic of knowledge developed in §4.2 and §6.4 to explore sufficient conditions for a Nash equilibrium in twoplayer games (§9.1). We then expand the modal logic of knowledge to multiple agents and prove a remarkable theorem, due to Aumann (1976), that asserts that an event that is self-evident (§9.2) for each member of a group is common knowledge.

    This theorem is surprising because it appears to prove that individuals know the content of the minds of others with no explicit epistemological assumptions. We show in §9.3 that this theorem is the result of implicit epistemological...

  13. 10 The Analytics of Human Sociality
    (pp. 174-193)

    It is often said that sociology deals with cooperation and economics deals with competition. Game theory, however, shows that cooperation and competition are neither distinct nor antithetical. Cooperation involves aligning the beliefs and incentives of agents with distinct interests, competition among groups requires cooperation within these groups, and competition among individuals may be mutually beneficial.

    A major goal of economic theory is to show the plausibility of wide-scale cooperation among self-regarding individuals. In an earlier period, this endeavor centered on the Walrasian model of general market equilibrium, culminating in the celebrated fundamental theorem of welfare economics (Arrow and Debreu 1954;...

  14. 11 The Unification of the Behavioral Sciences
    (pp. 194-220)

    The behavioral sciences include economics, anthropology, sociology, psychology, and political science, as well as biology insofar as it deals with animal and human behavior. These disciplines have distinct research foci, but they include four conflicting models of decision making and strategic interaction, as determined by what is taught in the graduate curriculum and what is accepted in journal articles without reviewer objection. The four are the psychological, the sociological, the biological, and the economic.

    These four models are not only different, which is to be expected given their distinct explanatory aims, but are alsoincompatible. That is, each makes assertions...

  15. 12 Summary
    (pp. 221-224)

    In a long book with many equations, it is easy to become mired in details and hence miss the big picture. This chapter is a summary of the book’s main points.

    Game theory is an indispensable tool in modeling human behavior. Behavioral disciplines that reject or peripheralize game theory are theoretically handicapped.

    Game theory presupposes the rationality of social actors, and the assumption of rationality has overwhelmingly strong empirical support.

    Rational decision theory recognizes that subjective priors are constituted by the social network of minds within which the decisionmaker is located, that the decision-maker’s knowledge is in general distributed across...

  16. 13 Table of Symbols
    (pp. 225-226)
  17. References
    (pp. 227-254)
  18. Subject Index
    (pp. 255-258)
  19. Author Index
    (pp. 259-265)