Essays in Behavioral Game Theory Solution Concepts

Author: Lin, Po-Hsuan

Year: 2024

Degree: Other

Advisor: Palfrey, Thomas R.

Committee Members: Tamuz, Omer; Camerer, Colin F.; Palfrey, Thomas R.; Rosenthal, Jean-Laurent

Option: Social Science

DOI: 10.7907/kbwg-w708

Abstract

This dissertation introduces two novel behavioral solution concepts for dynamic games: the cursed sequential equilibrium (CSE) and the dynamic cognitive hierarchy solution (DCH). Chapter 1 offers an overview of these theories and highlights their departure from standard equilibrium theory.

Chapter 2 develops the cursed sequential equilibrium, incorporating the bias where players neglect the correlation between other players’ private types and actions into game theory. This framework extends the analysis of cursed equilibrium proposed by Eyster and Rabin (2005) from games in strategic form to multi-stage games, and applies it to various applications in economics and political economy.

Chapter 3 introduces the dynamic cognitive hierarchy solution, which relaxes the requirement of mutual consistency of beliefs by extending the cognitive hierarchy approach from games in strategic form to the extensive form. An important feature is that the solution can be dramatically different for games that are strategically equivalent from the perspective of standard equilibrium theory.

This property, which I call the “representation effect,” has significant implications for experimental methodology and real-world phenomena. To test this effect, in Chapter 4, I design and conduct a laboratory experiment on the dirty-faces game, a simple multi-stage game of incomplete information. The experiment consists of two treatments, each implementing one of two strategically equivalent versions of the game. The dynamic cognitive hierarchy solution provides precise predictions about the differences in behavior between treatments, and the experimental results align with that prediction.

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