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September 23, 2007

Maybe brains isn't the problem

In regards to my posting on the Competitive valuation problem from a couple of days ago, I mentioned one reason we don't see the Nash Equilibrium is that there are "analytic difficulty of solving these recursive games". Nevertheless, it turns out that even letting people who are good at these games attempt them doesn't reduce the high observed equilibriums.

Game theorists have made a number of attempts to explain why a lot of players do not choose the Nash equilibrium in TD experiments. Some analysts have argued that many people are unable to do the necessary deductive reasoning and therefore make irrational choices unwittingly. This explanation must be true in some cases, but it does not account for all the results, such as those obtained in 2002 by Tilman Becker, Michael Carter and J¿rg Naeve, all then at the University of Hohenheim in Germany. In their experiment, 51 members of the Game Theory Society, virtually all of whom are professional game theorists, played the original 2-to-100 version of TD. They played against each of their 50 opponents by selecting a strategy and sending it to the researchers. The strategy could be a single number to use in every game or a selection of numbers and how often to use each of them. The game had a real-money reward system: the experimenters would select one player at random to win $20 multiplied by that player's average payoff in the game. As it turned out, the winner, who had an average payoff of $85, earned $1,700.

Posted by OneEyedMan at September 23, 2007 11:15 AM

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