A Theory of Adaptive Economic Behavior

Abstract

This book develops dynamic economic models using the perspective and analytic framework provided by psychological learning theory. This framework is used to resolve apparent contradictions between optimization theory, which lies at the heart of all modern economic theory, and day-to-day evidence that short-run economic behaviour cannot reasonably be described solely as the outcome of efficiently implemented self-interest. The author applies this viewpoint to a number of problem areas in which literal applications of maximization theory have not usually proved to be satisfactory. These include analyses of decision-making under uncertainty and gambling behaviour, the role of consumer-oriented advertising in influencing behaviour, the persistence of price dispersions in markets, and inflation.

A Behavioral Study of 'Noise' in Coordination Games

“…Based on our experimental data, statistical tests revealed that MBR (confined to a minimal memory length of one) accurately describes 96% of subjects' decisions, leading us to define deviations as the remaining decisions. It is noteworthy that best-response models with longer memories and also simple models of reinforcement learning (Bush and Mosteller, 1955;Suppes and Atkinson, 1959;Harley, 1981;Cross, 1983;Roth and Erev, 1995;Erev and Roth, 1998) make virtually identical predictions in our experiment. Hence, while we cannot be certain as to which precise underlying decision rule the subjects applied, we can be certain that decisions identified as deviations indeed deviated from the decision rule, whichever was applied by the subject.…”

Payoff-based learning explains the decline in cooperation in public goods games

“…They thus subsequently use information from game play to try and improve their earnings. For example, if contributing less over time to the public good coincided with an increase in such an individual's financial reward, then this individual would contribute even less next time, and vice versa (directional learning [27,[29][30][31][32][33]). Our second and third rules are based on two forms of pro-social behaviour that have been previously argued to lead to altruistic behaviour in public goods games [19,20,34,35].…”

Behavioural Game Theory: Thinking, Learning and Teaching

“…184-5;andEd Hopkins, 2002. 21 See Bush andMosteller, 1955;Harley, 1981;Cross, 1983;Arthur, 1991;McAllister, 1991;Roth and Erev, 1995;Erev and Roth, 1998. 22 When updated fictitious play beliefs are used to update the expected payoffs of strategies, precisely the same updating is achieved by reinforcing all strategies by their payoffs (whether received or forgone).…”