Behavioural Game Theory Analysis

Behavioural Game Theory

An Analysis of Ultimatum Games

179-Manavika Phukan 186- Ericka Sequeira

Behavioural Game Theory

Introduction

Economics is classified not as a pure science but as a social science. It being a social science has witnessed a lot of interdisciplinary growth in the recent past. Classical economic theories have collaborated with other social sciences like psychology, sociology, history and philosophy in order to get a new perspective about a new theory as well as to formulate new theories. The collaboration of economics with the other social sciences seems to have “humanized” the classical approach to economics in many ways.

Behavioral economics is seen as a sub discipline of economics. Due to its relationship

Therefore what exactly does Game theory allude to? It is the study of conflict and co-operation. The concepts of game theory are applicable when the actions of several economic agents are interdependent. Hans Peters (2008) defines game theory as “a formal, mathematical discipline which studies situations of competition and cooperation between several involved parties. This is a broad definition but consistent with a large number of applications. These applications range from strategic questions in warfare to understanding economic competition, from economic or social problems of fair distribution to behavior of animals in competitive situations, from parlor games to political voting systems- and this list is certainly not

This theory makes use of certain terminology such as Homo Sociologicus, Homo Economicus and Homo Reciprocans. Let us now define these terms:

1. Homo Sociologicus: The economic agent follows the prevailing norms without regard to self interest. The human agent is a ‘Clean slate’ of sorts upon which society writes its conventions. This term implies that we are our own makers.

2. Homo Economicus: The economic agent maximizes its own payoff without being concerned about the others. This agent is selfish in character.

3. Homo Reciprocans: They respond cooperatively to others cooperation even if it be at the cost of their own payoff maximization.

While dealing with behavioral game theory, an emotion that comes across very strongly about the agents involved in the trade-off is selfishness. For behavioral game theory, there are two types of jealousy that can be identified, namely Game theoretical selfishness where the economic agent aims at maximizing his/her trade-off independently of motive and Intentional selfishness where the player aims at maximizing his trade-off irrespective of the other person 's condition. Behavioral game theory also makes use of Prisoners dilemma. Along with Prisoners dilemma, there are 3 main identified types of “games”: the ultimatum game, the dictator game and the public goods