Working Paper BETA #2019-41

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Title : On the Function of Beliefs in Strategic Social Interactions

Author(s) : Arnaud Wolff

Abstract : We review the way beliefs have traditionally been formalized in game-theoretic settings, and argue that this formalization has its limits, especially in the realm of strategic social interactions. Normative game theory, with its emphasis on equilibrium concepts and its concern about how rational and intelligent players should play, has left little room for a formal characterization of the role of players’ beliefs. Given that beliefs determine play, we argue that a case can be made for a deeper understanding of their nature. We draw on the literature in evolutionary psychology and biology to decipher underlying, not readily apparent, incentives that might influence belief adoption. In fact, we take the view that beliefs are themselves subject to incentives, and that agents’ beliefs may therefore take on a predictable form if we are able to decipher the underlying incentives that they face. This predictable form might then be used to justify specific modelling assumptions, and accordingly improve the models’ predictive power.

Key-words : Beliefs, Game Theory, Social Incentives, Evolution, Coordination.

JEL Classification : B40, C70