posted on 2007-06-21, 09:17authored byAndrew M. Colman, M. Bacharach
Payoff dominance, a criterion for choosing between equilibrium points in games, is intuitively compelling, especially in matching games and other games of common interests, but it has not been justified from standard game-theoretic rationality assumptions. A psychological explanation of it is offered in terms of a form of reasoning that we call the Stackelberg heuristic in which players assume that their strategic thinking will be anticipated by their co-player(s). Two-person games are called Stackelberg-soluble if the players' strategies that maximize against their co-players' best replies intersect in a Nash equilibrium. Proofs are given that every game of common interests is Stackelberg-soluble, that a Stackelberg solution is always a payoff-dominant outcome, and that in every game with multiple Nash equilibria a Stackelberg solution is a payoff-dominant equilibrium point. It is argued that the Stackelberg heuristic may be justified by evidentialist reasoning.
History
Citation
Theory and Decision, 1997, 43, pp.1-19.
Published in
Theory and Decision
Publisher
Springer
Available date
2007-06-21
Notes
This is the author's final draft.
'The original publication is available at www.springerlink.com.'
http://www.springerlink.com/content/h46232710q241451/fulltext.pdf