Martin Dufwenberg is Visiting Professor at the Department of Economics at the School of Business, University of Gothenburg, and otherwise Professor at the University of Arizona, USA. Together with Amrish Patel at the University of Gothenburg he is hosting the world's first conference on psychological game theory this weekend in Gothenburg.
Tell me, what is psychological game theory?
– Let me first tell you that game theory is a mathematical toolbox with which one can describe situations where multiple persons make decisions and influence each other. Psychological game theory is as an extension of those methods, with which one can analyze how various psychological aspects, which economists typically do not take into account, affect behaviour. One can, for example, study the importance of emotions, for example anger, disappointment, regret, shame, and guilt, or reciprocity, that is the propensity to return favors or take revenge.
Why is psychological game theory relevant to economists?
– Economists have traditionally assumed that people's behavior is motivated solely by their own material gain. Other aspects of motivation, for example the emotions, have been disregarded. But this is a problem as emotions often influence behaviour and outcomes.
Your presentation is called "Tax Evasion with a Conscience". Can you tell us a little more?
– I present a paper I work on together with Katarina Nordblom, University of Gothenburg. We study interaction between tax payers and tax authorities. Tax evasion is possible, but we assume that guilt affects citizens to some extent. The conclusions we draw are, in many respects, as they relate to policy, very different from what you'd get with more traditional methods. We have exciting results regarding the differential implications of fines and imprisonment, regarding tax rule educational campaigns, and whether tax declarations should be made public.
You have developed a mathematical definition of kindness. How does that work?
– Kindness is important in reciprocity theory, where people are kind to those they view as kind, and vice versa. A key aspect is that it is not enough to describe what people do, one must also describe their intentions. For example, suppose that I spill coffee on you. Am I kind? You have to answer that question to determine how to best react. And the answer may plausibly depends on whether I did it on purpose or by accident. Techniques from psychological game theory are useful to describe this clearly.
What are you most looking forward to during the conference?
– Two things: First, to meet so many colleagues with similar research interests. Many of them have become good friends that I've known for years. Second, to learn about all the exciting studies to be presented. Two examples: A study of how frustration and anger could affect behavior and economic outcomes; applications may include pricing, violent crime, politics, recessions, haggling, terrorism, and road rage. Another study concerns how reciprocity may affect international climate negotiations.
The 1st Workshop on Psychological Game Theory takes place on 3-5 June at the School of Business, Economics and Law (in room F44), Unviersity of Gothenburg. A dozen of internationally recognised researchers in the field of psychological game theory will present new research.