Do rational people make mistakes

John D. Hey

pp. 55-66

in: Werner Leinfellner, Eckehart Köhler (eds), Game theory, experience, rationality, Berlin, Springer, 1998

Abstract

Unlike many of the papers at this Conference, this paper concerns games against nature rather than games against strategically-motivated human (or computer) opponents. Nevertheless, games against nature are relevant to games against opponents - as the literature makes clear. Indeed, one of the seminal pieces of that literature, John von Neuman/Oskar Morgenstern, The Theory of Games and Economic Behaviour (1947)¹, whilst ostensibly addressed to the theory of strategic games, derived one of the key elements of the theory of rational decision making against nature — namely Expected Utility theory — as a key component of the theory of strategic games. Moreover, many of the interesting new developments in Game Theory are pursuing the implications of non-Expected-Utility behaviour in games Contrariwise, some recent developments in individual decision-making, such as those related to intertemporal decision-making, are using results from the theory of games. Clearly, developments in each branch of the literature are relevant to the other branch.