The Bounds of Reason

Game theory is central to understanding human behavior and relevant to all of the behavioral sciences--from biology and economics, to anthropology and political science. However, asThe Bounds of Reasondemonstrates, game theory alone cannot fully explain human behavior and should instead complement other key concepts championed by the behavioral disciplines. Herbert Gintis shows that just as game theory without broader social theory is merely technical bravado, so social theory without game theory is a handicapped enterprise.Gintis illustrates, for instance, that game theory lacks explanations for when and how rational agents share beliefs. Rather than construct a social epistemology or reasoning process that reflects the real world, game theorists make unwarranted assumptions which imply that rational agents enjoy a commonality of beliefs. But, Gintis explains, humans possess unique forms of knowledge and understanding that move us beyond being merely rational creatures to being social creatures. For a better understanding of human behavior, Gintis champions a unified approach and in doing so shows that the dividing lines between the behavioral disciplines make no scientific sense. He asks, for example, why four separate fields--economics, sociology, anthropology, and social psychology--study social behavior and organization, yet their basic assumptions are wildly at variance. The author argues that we currently have the analytical tools to render the behavioral disciplines mutually coherent.Combining the strengths of the classical, evolutionary, and behavioral fields,The Bounds of Reasonreinvigorates the useful tools of game theory and offers innovative thinking for the behavioral sciences.

Preface	p. xiii
Decision Theory and Human Behavior	p. 1
Beliefs, Preferences, and Constraints	p. 4
The Meaning of Rational Action	p. 6
Why Are Preferences Consistent?	p. 7
Time Inconsistency	p. 8
Bayesian Rationality and Subjective Priors	p. 11
The Biological Basis for Expected Utility	p. 16
The Allais and Ellsberg Paradoxes	p. 16
Risk and the Shape of the Utility Function	p. 18
Prospect Theory	p. 21
Heuristics and Biases in Decision Making	p. 26
Game Theory: Basic Concepts	p. 30
The Extensive Form	p. 30
The Normal Form	p. 33
Mixed Strategies	p. 34
Nash Equilibrium	p. 35
The Fundamental Theorem of Game Theory	p. 36
Solving for Mixed-Strategy Nash Equilibria	p. 37
Throwing Fingers	p. 38
The Battle of the Sexes	p. 38
The Hawk-Dove Game	p. 39
The Prisoner's Dilemma	p. 40
Alice, Bob, and the Choreographer	p. 41
An Efficiency-Enhancing Choreographer	p. 43
The Correlated Equilibrium Solution Concept	p. 44
Game Theory and Human Behavior	p. 45
Self- and Other-Regarding Preferences	p. 46
Methodological Issues in Behavioral Game Theory	p. 49
An Anonymous Market Exchange	p. 52
The Rationality of Altruistic Giving	p. 54
Conditional Altruistic Cooperation	p. 56
Altruistic Punishment	p. 57
Strong Reciprocity in the Labor Market	p. 59
Altruistic Third-Party Punishment	p. 61
Altruism and Cooperation in Groups	p. 64
Inequality Aversion	p. 68
The Trust Game	p. 71
Character Virtues	p. 73
The Situational Character of Preferences	p. 75
The Dark Side of Altruistic Cooperation	p. 77
Norms of Cooperation: Cross-Cultural Variation	p. 78
Rationalizability and Common Knowledge of Rationality	p. 83
Epistemic Games	p. 83
A Simple Epistemic Game	p. 86
An Epistemic Battle of the Sexes	p. 87
Dominated and Iteratedly Dominated Strategies	p. 88
Eliminating Weakly Dominated Strategies	p. 89
Rationalizable Strategies	p. 90
Eliminating Strongly Dominated Strategies	p. 92
Common Knowledge of Rationality	p. 93
Rationalizability and Common Knowledge of Rationality	p. 94
The Beauty Contest	p. 94
The Traveler's Dilemma	p. 95
The Modified Traveler's Dilemma	p. 96
Global Games	p. 98
CKR Is an Event, Not a Premise	p. 100
Extensive Form Rationalizability	p. 102
Backward Induction and Dominated Strategies	p. 102
Subgame Perfection	p. 104
Subgame Perfection and Incredible Threats	p. 105
The Surprise Examination	p. 105
The Common Knowledge of Logicality Paradox	p. 106
The Repeated Prisoner's Dilemma	p. 107
The Centipede Game	p. 108
CKR Fails Off the Backward Induction Path	p. 110
How to Play the Repeated Prisoner's Dilemma	p. 112
The Modal Logic of Knowledge	p. 114
Backward Induction and Extensive Form CKR	p. 115
Rationality and Extensive Form CKR	p. 118
On the Nonexistence of CKR	p. 119
The Mixing Problem: Purification and Conjectures	p. 121
Why Play Mixed Strategies?	p. 121
Harsanyi's Purification Theorem	p. 123
A Reputational Model of Honesty and Corruption	p. 125
Purifying Honesty and Corruption	p. 128
Epistemic Games: Mixed Strategies as Conjectures	p. 128
Resurrecting the Conjecture Approach to Purification	p. 129
Bayesian Rationality and Social Epistemology	p. 132
The Sexes: From Battle to Ballet	p. 133
The Choreographer Trumps Backward Induction	p. 134
Property Rights and Correlated Equilibrium	p. 135
Convention as Correlated Equilibrium	p. 136
Correlated Strategies and Correlated Equilibria	p. 136
Correlated Equilibrium and Bayesian Rationality	p. 138
The Social Epistemology of Common Priors	p. 139
The Social Epistemology of Common Knowledge	p. 141
Social Norms	p. 143
Game Theory and the Evolution of
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