Chapter

RATIONALITY AND GAME THEORY

Cristina. Bicchieri

in The Oxford Handbook of Rationality

Published in print February 2004 | ISBN: 9780195145397
Published online January 2005 | e-ISBN: 9780199752393 | DOI: http://dx.doi.org/10.1093/0195145399.003.0010
 RATIONALITY AND GAME THEORY

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Bicchieri's topic is the modeling of interaction between decision makers in situations in which the outcome of the interaction depends on what the parties jointly do. Examples include chess, firms competing for business, politicians competing for votes, jury members deciding on a verdict, animals fighting over prey, bidders competing in auctions, threats and punishments in long-term relationships. Rationality assumptions are a basic ingredient of game theory, but though rational choice might be unproblematic in normative decision theory, it becomes problematic in interactive contexts, where the outcome of one’s choice depends on the actions of other agents. Another basic ingredient is the idea of equilibrium play: roughly, an equilibrium is a combination of strategies, one for each player, such that each player’s strategy is a best reply to the other players’ choices. Thus it is individually rational for each agent to play her equilibrium strategy; but, notoriously, such individually rational play can lead to sub-optimal outcomes, as in the well-known prisoner’s dilemma. The relationship between rationality assumptions and equilibrium play is Bicchieri’s main focus.

Keywords: choice; decision maker; decision theory; equilibrium; game theory; interaction; play; prisoner's dilemma; rationality assumption; sub-optimal; strategy

Chapter.  9912 words.  Illustrated.

Subjects: Philosophy of Mind

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