Preferences and Behaviors in Game Theory

The players in game theory make decisions to behave based on their preferences – determined by the beliefs in the information given as well as self-interests. Both preferences and beliefs are the main actors in defining the outcomes of an economic game.

Beliefs are individual’s understandings of the relationship between an action and its corresponding outcomes.

Preferences are defined in ‘Microeconomics – Behaviors, Institution and Evolution’ – Samuel Bowles as reasons for behaviors, that is, attributes of individuals – other than beliefs and capacities – that account for actions they take in a given situation.

The traditional conventional approach to game theory believes that preferences and behaviors of each individual are based solely on self-interests as summarized in the term Homo economus – or the economic man. Self-interest is the backbone foundation of this belief.

In this perspective, the outcomes experienced by others are not of the subject agent’s concern. The conventional approach also views that preferences do not depend on one’s current state and are unchanging under the same situations.

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Example: Day-care centers in Haifa

In Haifa, at six chosen day-care centers, a fine was imposed on parents’ lateness to encourage them picking their children up on time. The result was astonishing, more than double of the parents whose child enrolled at these six centers responded to the fine by an even greater tardiness.

This example showed that parents prefer economic loss over obeying the day-care time commitment. In the economic aspect, the fine allows parents to convert lateness from the violation of a social obligation that parents have to try to respect, into a buyable commodity. This showed that relying solely on homo economus to analyze human behaviors failed. Human behaviors are not totally dependent on self-interests but also social norms and constraints as demonstrated. In this case, the parents’ economic self-interests are forgone in place of time.

The conventional approach also fails to analyze this day-care problem due to its claim to unchanging preferences and behaviors under the same situations.

After the fine has been suspended and parents were no longer allowed to ‘buy’ lateness, data showed no tendency to return to the status quo ante. Returning to the previous policy did not only fail to retain status quo ante but also reduce ‘tardiness’ costs for parents to zero. This in turns encourages more parents to show up late. From the resistant to return to status quo in this example, we know the parents did not act the same way under the same circumstances.

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Source

Bowles, Samuel. Microeconomics: Behavior, Institutions, and Evolution. New Jersey: Princeton University Press, 2004.

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