TI-games I: An Exploration of Type Indeterminacy In Strategic Decision-Making

TL;DR

This paper extends the Type Indeterminacy (TI) model to strategic decision-making in 2x2 games, demonstrating how prior promise exchanges can influence behavior due to intrinsic type indeterminacy, unlike classical models.

Contribution

It introduces an extension of the TI-model to strategic settings and shows how it predicts effects of cheap-talk promises on behavior, unlike standard models.

Findings

TI-model is equivalent to classical incomplete information in one-shot games.

Promise exchanges can influence subsequent behavior in TI-model.

Classical models predict no impact of cheap-talk promises.

Abstract

The Type Indeterminacy model is a theoretical framework that formalizes the constructive preference perspective suggested by Kahneman and Tversky. In this paper we explore an extention of the TI-model from simple to strategic decision-making. A 2X2 game is investigated. We first show that in a one-shot simultaneaous move setting the TI-model is equivalent to a standard incomplete information model. We then let the game be preceded by a cheap-talk promise exchange game. We show in an example that in the TI-model the promise stage can have impact on next following behavior when the standard classical model predicts no impact whatsoever. The TI approach differs from other behavioral approaches in identifying the source of the effect of cheap-talk promises in the intrinsic indeterminacy of the players' type.