Behavioural studies of strategic thinking

The impact of game theory in psychology has been limited by the lack of precise cognitive or adaptive mechanisms underlying game-theoretic predictions. An emerging approach, “behavioural game theory”, strives to improve prediction by adding three kinds of cognitive detail: (1) A ``social utility function" which accounts for how payoffs and behaviour of others affect a player's utility (due to fairness, envy, guilt, and reciprocity); (2) a theory of the number of steps of strategic thinking players use in novel situations; and (3) statistical theories of how players learn from experience and influence others when games are repeated. These three elements are illustrated with data from many games and subject pools. New directions include study of framing effects, mental representations, and novel cognitive measures (like information acquisition and fMRI activity). Further progress will tie game theory more closely to cognitive science, and make it better-suited to analyze complex naturally-occuring social situations and create new institutions.