He provides economic forecasts for Bloomberg's monthly economic survey. One of his recently published papers was honored as the Edmund A. Patrick L. Prior to starting his company, Mr. A recognized authority on business valuation and commercial damages, Mr. Anderson has provided expert testimony, management, and strategic consulting. He is the executive editor of three edition of the State Economic Handbook and has written more than published works, including the book Business Economics and Finance and a chapter in Litigation Economics.
Routledge eBooks are available through VitalSource. Most VitalSource eBooks are available in a reflowable EPUB format which allows you to resize text to suit you and enables other accessibility features. In their critical work on behavioural game theory, Lucas, McCubbins and Turner  argue that deviations to equilibrium strategies would not be consistent for most subjects even in similar tasks, and that between different subjects there would be a large variance in choices in any specific task.
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Cognitive Hierarchy Model in particular, however, provides a model that takes into consideration bounded rationality and heterogeneous thinking, while being as generally applicable as equilibrium models. More than a hundred experiments and various field studies of behavioural game theory models have shown that those models that take bounded rationality into consideration outperform the predictions of equilibrium strategies see . The broad spectrum of areas of application, from timber auctions  Gillen, to managerial strategies , lead to infer that behavioural game theory models provide an advantage over traditional models.
Conclusions This outline illustrated how game theory developed from traditional game theory models to include less rational human behaviour in behavioural game theory models. First, a selection of different types of traditional game theory was outlined, which operate on the basic assumption of the homo economicus. Further, Bayesian games were illustrated using the example of the hiring of differently abled workers as a game with incomplete information.
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Then the application of traditional game theory, with its implication for management and decision making, was described further. In particular, the challenges for managers that traditional game theory would only present one alternative as a solution to a problem, often without providing information on the underlying assumptions, has been addressed. To take into account the fact that humans have been found to not act rationally in games, behavioural game theory has developed models that predict behaviour in games in real life terms, moving away from the assumption of the economically rationally acting agent.
Cognitive hierarchy model depicts that players use their beliefs in steps of thinking to take a decision, to be used for predictions specifically in early stages of repeated games or one-shot games.
It can be concluded on cognitive hierarchy models that beliefs about how other players are going to behave are inaccurate due to bounded rationality in strategic thinking. The quantal response equilibrium as a noisy optimisation model assumes that while players are allowed to make minor mistakes, their beliefs about the behaviour of other players is always accurate.
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As such, quantal response equilibrium has been found to successfully explain deviations from Nash equilibrium. Experience weighted attraction learning has been introduced as another model which includes behavioural theories to predict decisions in games, specifically this algorithm considers reinforcement and belief-learning. As the bases for this model are foregone payoffs, the limitations of experience weighted attraction learning as a backward-looking model have been illustrated.
Models including sophistication have been introduced to account for strategic thinking of sophisticated players who will change their own behaviour based on the understanding that other players also go through learning processes with repetition of the game. It has been shown that in models including sophistication, players look ahead and use strategic foresight, eliminating the limitations of previous models. An application of behavioural game theory has been presented as models with social preferences, which take social interactions such as reciprocity, fairness and altruism into consideration.
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While models that include social preferences in their predictions have been shown to provide accurate and real-life results, it has been found that the challenge lies in finding a set of psychologically plausible models which are both comprehensive and workable. It became apparent through the discussion that behavioural game theory provides the more accurate predictions of human behaviour in decision making, which over a hundred different experiments have confirmed. Note 1. Ariely, D. HarperCollins: London, UK. In Advances in Artificial Intelligence pp.
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Springer: Berlin Heidelberg. The American Economic Review, 97 5 , American Economic Journal: Microeconomics, 3 3 , Estimating structural models of equilibrium and cognitive hierarchy thinking in the field: The case of withheld movie critic reviews. Management Science, 59 3 , Strategic thinking. Working Manuscript. Games and Economic Behavior, 10 1 , Quantal response equilibria. In Behavioural and Experimental Economics pp. Working paper, the University of British Columbia.
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