A theoretical framework to explain non-Nash equilibrium strategic behavior in experimental games

TL;DR

This paper introduces a theoretical framework based on bounded rationality and a temperature parameter to predict non-Nash equilibrium outcomes in strategic games, aligning theoretical predictions with experimental human behavior.

Contribution

It presents a novel model that incorporates bounded rationality via a temperature parameter, extending traditional game theory to better explain experimental results.

Findings

Successfully predicts non-Nash strategic behaviors in experiments

Reinterprets the concept of temperature in game theory

Bridges gap between normative predictions and human behavior

Abstract

Conventional game theory assumes that players are perfectly rational. In a realistic situation, however, players are rarely perfectly rational. This bounded rationality is one of the main reasons why the predictions of Nash equilibrium in normative game theory often diverge from human behavior in real experiments. Motivated by the Boltzmann weight formalism, here we present a theoretical framework to predict the non-Nash equilibrium probabilities of possible outcomes in strategic games by focusing on the differences in expected payoffs of players rather than traditional utility metrics. In this model, bounded rationality is parameterized by assigning a temperature to each player, reflecting their level of rationality by interpolating between two decision-making regimes, i.e., utility maximization and equiprobable choices. Our framework predicts all possible joint strategies and is able to determine the relative probabilities for multiple pure or mixed strategy equilibria. To validate model predictions, by analyzing experimental data we demonstrated that our model can successfully explain non-Nash equilibrium strategic behavior in experimental games. Our approach reinterprets the concept of temperature in game theory, leveraging the development of theoretical frameworks to bridge the gap between the predictions of normative game theory and the results of behavioral experiments.