Incomparable Pay-Offs and Rationality - the Parallel Games Approach

Wednesday, July 16, 2014: 11:15 AM
Room: Booth 69
Oral Presentation
Alexandra GHEONDEA-ELADI , Institute for Research on Quality of Life, Romanian Academy, Bucharest, Romania
The reason why sometimes people make suboptimal decisions from the point of view of not maximizing wealth has been an interesting question for researchers for a long time now. This question is apparently embedded only in a rational choice theory, but throughout time researchers have given it different answers. From the suggestion that people make suboptimal decisions because their rationality is bounded to their cognitive abilities (Simon,1965), researchers went on to suggest that suboptimal decisions happen because people are committed to a task with long-term implications (Sen, 1977) and because they tend to be biased by the use of certain judgement heuristics which lead them to make systematic judgement errors (Kahneman and Tversky, 1979; 1981; Kahneman et al., 1982). Later on, scholars noticed that the actor's choice is only suboptimal to the observer, while being perfectly optimal for the actor (Tsebelis, 1988; 1990; Frisch, 2001) because the actor tries to maximize the outcome of multiple situations, some developing in different “arenas” and others developing around the rules and institutions that govern each situation. Our contribution to this body of research proposes that actors make apparently suboptimal decisions because they have to decide between categories of pay-offs which are not comparable. These categories of pay-offs generally appear in parallel games, that is games played at the same time. An ultimatum game experiment constructed to reveal two parallel games and two nested games was undertaken. Results showed that the presence of a relationship exterior to the experimental game determined a suboptimal behaviour in the experimental game as well as in another game. Further analysis revealed that non-monetary pay-offs, pay-offs from obeying rules and the norm of fairness, as well as the perception of other parallel-games unaccounted for in the design of the experiment motivated such sub-optimal behaviour.