Evolutionary Game Theory and Behavioral Economics
Introduction
With the increasing importance of mathematics in economics approaches, our project is to focus on the application of quantitative science to behavioral economics. Specifically, we will investigate the more sophisticated tools needed to develop more complicated economic models as the economic thoughts evolve. The economic paradigms of interest are the Walrasian paradigm, which dominated in the third quarter of the 20th century, and another economic paradigm which we refer to as “Bowles’ paradigm” for the sake of easy distinction (it does not necessarily mean that Samuel Bowles invented this paradigm).
We will first analyze Walrasian’s paradigm and the mathematics behind it. Then, we will point out some of its shortage, i.e. things that the model cannot explain. Finally, we will use the game theoretical approach of Bowles’s paradigm to explain those.
3 empirically observed characteristicsLink title- - Social interaction - Individual behaviors - Technologies - Non-contractual social interactions: when individuals interact, it is the exception, not the rule, that everything between them is regulated by an enforced contract - Want to analyze the coordination problems in order to see how institutions work - institutions and participants in the interaction - Believes that Walrasian paradigm is inferior to the more elaborate modeling of institutions by game theory - Main objective in this chapter is to introduce basic game theory to provide taxonomy of social interactions and their outcomes - Prisoner’s dilemma (p.28) - each individual act to maximize their pay off but when both choose to maximize their payoff, the outcome is worse for both
Necessary Backgrounds
a. Classical Game Theory
b. Evolutionary Game Theory
c. Others
Walrasian paradigm
assumes that individuals choose actions based on the far-sighted evaluation of their consequences based on preferences that are self-regarding and exogenously determined
social interactions take the exclusive form of contractual exchanges
that increasing returns to scale can be ignored in most applications and institutions do not evolve
institutions exist to facilitate trade
represents economic behavior as the solution to a constrained optimization problem faced by a fully informed individual in a virtually institution-free environment
Deduced a few strong predictions concerning the outcomes likely to be observed in the economy
Theoretical Institutional Economics (Bowles’ paradigm)
Bowles’ paradigm assumes non-contractual social interactions, adaptive and other-regarding behaviors, and generalized increasing returns.
Conclusion
Preferences
(1) Bowles, Samuel. Microeconomics: Behavior, Institutions, and Evolution. Princeton, NJ: Princeton University Press, 2006. Print.
(2) Gintis, Herbert. Game Theory Evolving: A Problem-Centered Introduction to Modeling Strategic Interaction. 1st ed. Princeton, NJ: Princeton University Press, 2000. Print.
(3) Gintis, Herbert. The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences. Princeton, NJ: Princeton University Press, 2009. Print.
