Introducing Game Theory: A Graphic Guide (Graphic Guides)

by Ivan Pastine

Human behaviour is probably better approximated by bounded rationality. That is, human rationality is limited by the tractability of the decision problem (how easy it is to manage), the cognitive limitations of our minds, the time available in which to make the decision, and how important the decision is to us.

The experiment’s results were broadly in line with game theory. Cooperative outcomes were often recorded as long as the end of the game was not in sight. But as time was running out and the end of the game drew near, players started to defect and mutual coordination broke down.

The subgame-perfect Nash equilibrium where the bank rejects the loan application is not Pareto efficient.