Gerd Gigerenzer

Reinhard Selten

In a complex and uncertain world, humans and animals make decisions under the constraints of limited knowledge, resources, and time. Yet models of rational decision making in economics, cognitive science, biology, and other fields largely ignore these real constraints and instead assume agents with perfect information and unlimited time. About forty years ago, Herbert Simon challenged this view with his notion of "bounded rationality." Today, bounded rationality has become a fashionable term used for disparate views of reasoning. This book promotes bounded rationality as the key to understanding how real people make decisions. Using the concept of an "adaptive toolbox," a repertoire of fast and frugal rules for decision making under uncertainty, it attempts to impose more order and coherence on the idea of bounded rationality. The contributors view bounded rationality neither as optimization under constraints nor as the study of people's reasoning fallacies. The strategies in the adaptive toolbox dispense with optimization and, for the most part, with calculations of probabilities and utilities. The book extends the concept of bounded rationality from cognitive tools to emotions; it analyzes social norms, imitation, and other cultural tools as rational strategies; and it shows how smart heuristics can exploit the structure of environments.

The Adaptive Toolbox

Bounded Rationality

Michael Schreckenberg

How do people behave in different traffic situations? Are there general laws for mathematical modelling of decision dynamics? The answers, given at the first international workshop on "Human Behaviour in Traffic Networks", are presented in this volume. In 13 articles, well-known experts report about their current work on experiments and modelling in this area. The topics range from psychological behaviour in traffic situations, traffic simulations of various aspects and market analysis to experiments with human participants used in experimental economics. The articles filled with many illustrations are aimed at interested students as well as experts in this field.

Human Behaviour and Traffic Networks

John C. Harsanyi

The authors, two of the most prominent game theorists of this generation, have devoted a number of years to the development of the theory presented here, and to its economic applications. They propose rational criteria for selecting one particular uniformly perfect equilibrium point as the solution of any noncooperative game. And, because any cooperative game can be remodelled as a noncooperative bargaining game, their theory defines a one-point solution for any cooperative game as well.By providing solutions - based on the same principles of rational behavior - for all classes of games, both cooperative and noncooperative, both those with complete and with incomplete information, Harsanyi and Selten's approach achieves a remarkable degree of theoretical unification for game theory as a whole and provides a deeper insight into the nature of game-theoretic rationality.The book applies this theory to a number of specific game classes, such as unanimity games; bargaining with transaction costs; trade involving one seller and several buyers; two-person bargaining with incomplete information on one side, and on both sides. The last chapter discusses the relationship of the authors' theory to other recently proposed solution concepts, particularly the Kohberg-Mertens stability theory.John C. Harsanyi is Flood Research Professor in Business Administration and Professor of Economics, University of California, Berkeley. Reinhard Selten is Professor of Economics Institute of Social and Economic Sciences: University of Bonn, Federal Republic of Germany.

A General Theory of Equilibrium Selection in Games

The four volumes of Game Equilibrium Models present applications of non-cooperative game theory. Problems of strategic interaction arising in biology, economics, political science and the social sciences in general are treated in 42 papers on a wide variety of subjects. Internationally known authors with backgrounds in various disciplines have contributed original research. The reader finds innovative modelling combined with advanced methods of analysis. The four volumes are the outcome of a research year at the Center for Interdisciplinary Studies of the University of Bielefeld. The close interaction of an international interdisciplinary group of researchers has produced an unusual collection of remarkable results of great interest for everybody who wants to be informed on the scope, potential, and future direction of work in applied game theory. Volume III Strategic Bargaining contains ten papers on game equilibrium models of bargaining. All these contributions look at bargaining situations as non-cooperative games. General models of two-person and n-person bargaining are explored.

Strategic Bargaining

Game Equilibrium Models III

The four volumes of Game Equilibrium Models present applications of non-cooperative game theory. Problems of strategic interaction arising in biology, economics, political science and the social sciences in general are treated in 42 papers on a wide variety of subjects. Internationally known authors with backgrounds in various disciplines have contributed original research. The reader finds innovative modelling combined with advanced methods of analysis. The four volumes are the outcome of a research year at the Center for Interdisciplinary Studies of the University of Bielefeld. The close interaction of an international interdisciplinary group of researchers has produced an unusual collection of remarkable results of great interest for everybody who wants to be informed on the scope, potential, and future direction of work in applied game theory. Volume IV Social and Political Interaction contains game equilibrium models focussing on social and political interaction within communities or states or between states, i.e. national and international social and political interaction. Specific aspects of those interactions are modelled as non-cooperative games and their equilibria are analysed.

Social and Political Interaction

Game Equilibrium Models IV

The unifying theme of the 23 contributions to this book is the social interaction of rational individuals. The work of John C. Harsanyi on game theory, social choice, and the philosophy of science finds an echo in these essays. Contributions by well known game theorists and economists present a great variety of stimulating theoretical investigations. Part I contains six papers on non-cooperative game theory written by Maschler, Owen, Myerson, Peleg, Rosenmüller, Hart and Mas-Collel. Part II with three contributions by Kalei, Samet, van Damme, d'Aspremont, and Gérard-Varet is devoted to the use of non-cooperative game theory in the analysis of problems of mechanism design. Basic questions of non-cooperative game theory are discussed in three essays by Güth, Hardin, and Sugden in Part III. Applied game models are discussed in three papers by Friedman, Selten, and Shubik in Part IV. Problems of social choice are investigated in Part V which deals with utilitarianism and related topics in five contributions by Hammond, Binmore, Arrow, Roemer, and Broome. Finally, Part VI contains three papers: an interdisciplinary comparison of physics and economics by Samuelson, a methodological essay by Brock, and an appraisal of the work of John C. Harsanyi.

Essays in Honor of John C. Harsanyi

Rational Interaction

Klaus Abbink

Ricarda Cox

Learning Direction Theory and the Winners Curse

In this paper I present a description of the theory of impulse balance. This theory predicts a mixed strategy for every player in an arbitrary n-person game in normal form. However, this mixed strategy is not interpreted as the result of a process of rational deliberation, but rather the behavioral distribution of pure strategies in a long section of a supergame of the normal form game. In a business problem not directly treatable by impulse balance the theory can be applied nevertheless with the help of an additional criterion 70% correct long term predictions of the future distribution of decision behavior were obtained in the evaluation of first experiements.

Reinhard Selten

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