scholarly journals How Much Would You Pay to Change a Game before Playing It?

Entropy ◽  
2019 ◽  
Vol 21 (7) ◽  
pp. 686
Author(s):  
David Wolpert ◽  
Justin Grana
Keyword(s):  
Willingness To Pay ◽  
Decision Maker ◽  
Direct Effect ◽  
Private Information ◽  
The Other ◽  
Rational Decision ◽  
Arbitrary Solution ◽  
Quantal Response ◽  
Parameter Change ◽  
Matching Pennies

Envelope theorems provide a differential framework for determining how much a rational decision maker (DM) is willing to pay to alter the parameters of a strategic scenario. We generalize this framework to the case of a boundedly rational DM and arbitrary solution concepts. We focus on comparing and contrasting the case where DM’s decision to pay to change the parameters is observed by all other players against the case where DM’s decision is private information. We decompose DM’s willingness to pay a given amount into a sum of three factors: (1) the direct effect a parameter change would have on DM’s payoffs in the future strategic scenario, holding strategies of all players constant; (2) the effect due to DM changing its strategy as they react to a change in the game parameters, with the strategies of the other players in that scenario held constant; and (3) the effect there would be due to other players reacting to a the change in the game parameters (could they observe them), with the strategy of DM held constant. We illustrate these results with the quantal response equilibrium and the matching pennies game and discuss how the willingness to pay captures DM’s anticipation of their future irrationality.

BISER

2009 ◽  
pp. 66-68
Author(s):  
Dimitar Christozov
Keyword(s):  
Decision Making ◽  
Decision Maker ◽  
Quality Indicator ◽  
The Other ◽  
Rational Decision ◽  
Single Measure ◽  
A Value ◽  
The Common ◽  
The Given ◽  
Integral Quality

The Simon’s model of the decision-making process includes the phase of choosing among alternatives or options, designed for solving the given problem. Usually an option dominates in some of the properties and is less suitable according to others. Making a rational decision in choosing an option means to balance between different properties. There are two principle strategies in performing this task: • To evaluate every option on the whole set of properties, and • To apply a procedure to extract the best (the most suitable) one. Integration of information associated with the multiple properties of competitive options into a single measure is presented and discussed. Options could be goods to purchase, list of products for manufacturing, suppliers, services, technologies, and even candidates for a given position. The common in all such cases are: • The decision maker has to assign a value to every option in the competing group by comparing it against its alternatives—the other members of the same group. Further, we shall call this value integral quality indicator of the option. • Options in the group are described with a common list of properties or characteristics, which we will call further single quality indicators of the option. Different measures, designed to integrate the information provided by single indicators, are presented and discussed.

An Adaptive Learning Model with Foregone Payoff Information

2014 ◽  
Vol 14 (1) ◽  
pp. 149-176 ◽  
Author(s):  
Naoki Funai
Keyword(s):  
Decision Maker ◽  
Adaptive Learning ◽  
Side Effect ◽  
The Other ◽  
Decision Problems ◽  
Fictitious Play ◽  
Quantal Response ◽  
Long Run ◽  
Theoretical Predictions ◽  
Optimal Action

AbstractIn this paper, we provide theoretical predictions on the long-run behavior of an adaptive decision maker with foregone payoff information. In the model, the decision maker assigns a subjective payoff assessment to each action based on his past experience and chooses the action that has the highest assessment. After receiving a payoff, the decision maker updates his assessments of actions in an adaptive manner, using not only the objective payoff information but also the foregone payoff information, which may be distorted. The distortion may arise from “the grass is always greener on the other side” effect, pessimism/optimism or envy/gloating; it depends on how the decision maker views the source of the information. We first provide conditions in which the assessment of each action converges, in that the limit assessment is expressed as an average of the expected objective payoff and the expected distorted payoff of the action. Then, we show that the decision maker chooses the optimal action most frequently in the long run if the expected distorted payoff of the action is greater than the ones of the other actions. We also provide conditions, under which this model coincides with the experience-weighted attraction learning, stochastic fictitious play and quantal response equilibrium models, and thus this model provides theoretical predictions for the models in decision problems.

scholarly journals Overconfidence and Timing of Entry

Games ◽  
2020 ◽  
Vol 11 (4) ◽  
pp. 44
Author(s):  
Luis Santos-Pinto ◽  
Tiago Pires
Keyword(s):  
Private Information ◽  
Welfare Effect ◽  
The Other ◽  
Ex Ante ◽  
Rational Player ◽  
Timing Of Entry ◽  
Game Players ◽  
The Impact ◽  
Stackelberg Leader

We analyze the impact of overconfidence on the timing of entry in markets, profits, and welfare using an extension of the quantity commitment game. Players have private information about costs, one player is overconfident, and the other one rational. We find that for slight levels of overconfidence and intermediate cost asymmetries, there is a unique cost-dependent equilibrium where the overconfident player has a higher ex-ante probability of being the Stackelberg leader. Overconfidence lowers the profit of the rational player but can increase that of the overconfident player. Consumer rents increase with overconfidence while producer rents decrease which leads to an ambiguous welfare effect.

scholarly journals Two Remarks on Blackwell's Theorem

2008 ◽  
Vol 45 (02) ◽  
pp. 580-586 ◽  
Author(s):  
Ehud Lehrer ◽  
Eran Shmaya
Keyword(s):  
Decision Maker ◽  
Information Structure ◽  
Decision Problem ◽  
Partial Information ◽  
The Other ◽  
Actual State ◽  
Information Structures ◽  
Comparison Of Experiments ◽  
Classical Characterization ◽  
Blackwell's Theorem

In a decision problem with uncertainty a decision maker receives partial information about the actual state via an information structure. After receiving a signal, he is allowed to withdraw and gets zero profit. We say that one structure is better than another when a withdrawal option exists if it may never happen that one structure guarantees a positive profit while the other structure guarantees only zero profit. This order between information structures is characterized in terms that are different from those used by Blackwell's comparison of experiments. We also treat the case of a malevolent nature that chooses a state in an adverse manner. It turns out that Blackwell's classical characterization also holds in this case.

scholarly journals An Examination of Consumer Willingness to Pay for Local Products

2015 ◽  
Vol 44 (3) ◽  
pp. 253-274 ◽  
Author(s):  
Aaron Adalja ◽  
James Hanson ◽  
Charles Towe ◽  
Elina Tselepidakis
Keyword(s):  
Willingness To Pay ◽  
Conjoint Analysis ◽  
Random Sample ◽  
Local Food ◽  
Food Products ◽  
The Other ◽  
Local Production

We use data from hypothetical and nonhypothetical choice-based conjoint analysis to estimate willingness to pay for local food products. The survey was administered to three groups: consumers from a buying club with experience with local and grass-fed production markets, a random sample of Maryland residents, and shoppers at a nonspecialty Maryland supermarket. We find that random-sample and supermarket shoppers are willing to pay a premium for local products but view local and grass-fed production as substitutes. Conversely, buying-club members are less willing to pay for local production than the other groups but do not conflate local and grass-fed production.

scholarly journals Variable and sub-optimal responses to a choice problem are a persistent default mode

2019 ◽  
Author(s):  
Amelia R. Hunt ◽  
Warren James ◽  
Josephine Reuther ◽  
Melissa Spilioti ◽  
Eleanor Mackay ◽  
...  
Keyword(s):  
Optimal Strategy ◽  
Decision Rules ◽  
Optimal Solution ◽  
The Other ◽  
Rational Decision ◽  
Choice Problem ◽  
Default Mode ◽  
Potential Benefits ◽  
Simple Logic ◽  
Simple Decision Rule

Here we report persistent choice variability in the presence of a simple decision rule. Two analogous choice problems are presented, both of which involve making decisions about how to prioritize goals. In one version, participants choose a place to stand to throw a beanbag into one of two hoops. In the other, they must choose a place to fixate to detect a target that could appear in one of two boxes. In both cases, participants do not know which of the locations will be the target when they make their choice. The optimal solution to both problems follows the same, simple logic: when targets are close together, standing at/fixating the midpoint is the best choice. When the targets are far apart, accuracy from the midpoint falls, and standing/fixating close to one potential target achieves better accuracy. People do not follow, or even approach, this optimal strategy, despite substantial potential benefits for performance. Two interventions were introduced to try and shift participants from sub-optimal, variable responses to following a fixed, rational rule. First, we put participants into circumstances in which the solution was obvious. After participants correctly solved the problem there, we immediately presented the slightly-less-obvious context. Second, we guided participants to make choices that followed an optimal strategy, and then removed the guidance and let them freely choose. Following both of these interventions, participants immediately returned to a variable, sub-optimal pattern of responding. The results show that while constructing and implementing rational decision rules is possible, making variable responses to choice problems is a strong and persistent default mode. Borrowing concepts from classic animal learning studies, we suggest this default may persist because choice variability can provide opportunities for reinforcement learning.

The United States and Iran

2018 ◽  
Author(s):  
Ray Takeyh
Keyword(s):  
United States ◽  
National Security ◽  
Decision Maker ◽  
The United States ◽  
The Other ◽  
Order Effects ◽  
Optimal Outcome ◽  
Third Order ◽  
National Interests ◽  
Taking Action

Implementing deterrent and compellent strategies are among the most critical tasks of the national security decision maker. However, as the case of U.S.-Iranian relations since 1979 demonstrates, deterring another state from taking action—especially if it considers those steps to be in its national interests—or compelling it to adopt policies in line with one’s own preferences but which represent a setback to the goals of the other state can be a difficult proposition. In addition, the Iran relationship demonstrates howthe use of deterrent and compellent instruments must be weighed against costs and other second- and third-order effects which may cause the policymaker to accept a less than optimal outcome in order to avoid greater complications in other areas.

Applications to Economics

2016 ◽  
Author(s):  
Jacob K. Goeree ◽  
Charles A. Holt ◽  
Thomas R. Palfrey
Keyword(s):  
Nash Equilibrium ◽  
Private Information ◽  
Price Competition ◽  
Quantal Response ◽  
Unique Nash Equilibrium ◽  
Common Effort ◽  
The Cost ◽  
All Pay Auction ◽  
Individual Effort ◽  
Applications To Economics

This chapter explores whether the equilibrium effects of noisy behavior can cause large deviations from standard predictions in economically relevant situations. It considers a simple price-competition game, which is also partly motivated by the possibility of changing a payoff parameter that has no effect on the unique Nash equilibrium, but which may be expected to affect quantal response equilibrium. In the minimum-effort coordination game studied, any common effort in the range of feasible effort levels is a Nash equilibrium, but one would expect that an increase in the cost of individual effort or an increase in the number of players who are trying to coordinate would reduce the effort levels observed in an experiment. The chapter presents an analysis of the logit equilibrium and rent dissipation for a rent-seeking contest that is modeled as an “all-pay auction.” The final two applications in this chapter deal with auctions with private information.

Heterogeneity

2016 ◽  
Author(s):  
Jacob K. Goeree ◽  
Charles A. Holt ◽  
Thomas R. Palfrey
Keyword(s):  
Choice Behavior ◽  
Error Rates ◽  
The Other ◽  
Individual Heterogeneity ◽  
Response Functions ◽  
Quantal Response ◽  
Quantal Response Equilibrium ◽  
Skill Levels ◽  
Apparent Reason ◽  
Chess Players

Players have different skills, which has implications for the degree to which they make errors. Low-skill hitters in baseball often swing at bad pitches, beginning skiers frequently fall for no apparent reason, and children often lose at tic-tac-toe. At the other extreme, there are brilliant chess players, bargainers, and litigators who seem to know exactly what move to make or offer to decline. From a quantal response equilibrium (QRE) perspective, these skill levels can be modeled in terms of variation in error rates or in responsiveness of quantal response functions. This chapter explores issues related to individual heterogeneity with respect to player error rates. It also describes some extensions of QRE that relax the assumption that player expectations about the choice behavior of other players are correct. For example, in games that are played only once, players are not able to learn from others' prior decisions, and expectations must be based on introspection. The chapter develops the implications of noisy introspection embedded in a model of iterated thinking.

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