Radzvilas, Mantas
(2016)
Strategic interdependence, hypothetical bargaining, and mutual advantage in non-cooperative games.
PhD thesis, London School of Economics and Political Science.
Abstract
One of the conceptual limitations of the orthodox game theory is its inability to offer definitive theoretical predictions concerning the outcomes of noncooperative games with multiple rationalizable outcomes. This prompted the emergence of goal-directed theories of reasoning – the team reasoning
theory and the theory of hypothetical bargaining. Both theories suggest that people resolve non-cooperative games by using a reasoning algorithm which allows them to identify mutually advantageous solutions of non-cooperative games.
The primary aim of this thesis is to enrich the current debate on goaldirected reasoning theories by studying the extent to which the principles of the bargaining theory can be used to formally characterize the concept of mutual advantage in a way which is compatible with some of the conceptually compelling principles of orthodox game theory, such as individual rationality, incentive compatibility, and non-comparability of decision-makers’ personal payoffs.
I discuss two formal characterizations of the concept of mutual advantage derived from the aforementioned goal-directed reasoning theories: A measure of mutual advantage developed in collaboration with Jurgis Karpus, which is broadly in line with the notion of mutual advantage suggested
by Sugden (2011, 2015), and the benefit-equilibrating bargaining solution function, which is broadly in line with the principles underlying Conley and Wilkie’s (2012) solution for Pareto optimal point selection problems with finite choice sets. I discuss the formal properties of each solution, as well as
its theoretical predictions in a number of games. I also explore each solution concept’s compatibility with orthodox game theory.
I also discuss the limitations of the aforementioned goal-directed reasoning theories. I argue that each theory offers a compelling explanation of how a certain type of decision-maker identifies the mutually advantageous solutions of non-cooperative games, but neither of them offers a definitive answer to the question of how people coordinate their actions in non-cooperative social interactions.
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