Cooperation, psychological game theory, and limitations of rationality in social interaction

Rational choice theory enjoys unprecedented popularity and influence in the behavioral and social sciences, but it generates intractable problems when applied to socially interactive decisions. In individual decisions, instrumental rationality is defined in terms of expected utility maximization. Th...

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Bibliographic Details
Published in:	The Behavioral and brain sciences 2003-04, Vol.26 (2), p.139-153
Main Author:	Colman, Andrew M.
Format:	Article
Language:	eng
Subjects:	backward induction Centipede game Choice Behavior Cognition common knowledge Common Sense cooperation Cooperative Behavior Decision Making Decision Theory epistemic reasoning Expected utility Game Theory Humans Interpersonal Relations Logic Models, Psychological payoff dominance Psychological Theory pure coordination game Rational Choice rational choice theory Rationality Social behavior social dilemma Social Interaction
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Summary:	Rational choice theory enjoys unprecedented popularity and influence in the behavioral and social sciences, but it generates intractable problems when applied to socially interactive decisions. In individual decisions, instrumental rationality is defined in terms of expected utility maximization. This becomes problematic in interactive decisions, when individuals have only partial control over the outcomes, because expected utility maximization is undefined in the absence of assumptions about how the other participants will behave. Game theory therefore incorporates not only rationality but also common knowledge assumptions, enabling players to anticipate their co-players' strategies. Under these assumptions, disparate anomalies emerge. Instrumental rationality, conventionally interpreted, fails to explain intuitively obvious features of human interaction, yields predictions starkly at variance with experimental findings, and breaks down completely in certain cases. In particular, focal point selection in pure coordination games is inexplicable, though it is easily achieved in practice; the intuitively compelling payoff-dominance principle lacks rational justification; rationality in social dilemmas is self-defeating; a key solution concept for cooperative coalition games is frequently inapplicable; and rational choice in certain sequential games generates contradictions. In experiments, human players behave more cooperatively and receive higher payoffs than strict rationality would permit. Orthodox conceptions of rationality are evidently internally deficient and inadequate for explaining human interaction. Psychological game theory, based on nonstandard assumptions, is required to solve these problems, and some suggestions along these lines have already been put forward.
ISSN:	0140-525X 1469-1825