Individual Rationality and Real-World Strategic Interactions: Understanding the Competitive-Cooperative Spectrum

Abstract

We are interested in game-theoretic models of (bounded) rationality, and specifically in investigating (in)adequacy of the traditional models of rational behavior in strategic encounters – models such as Nash Equilibria and other “solution concepts” from the classical game theory. We argue that classical game theory arose in the historical and social context dominated by the Cold War and interest in zero-sum games, leading to solution concepts appropriate for the competitive games (either strictly competitive or at least, “close to being zero-sum”), but that have been found to be woefully inadequate when applied to certain 2-player games that are “far away” from being zero-sum, that is, farther along the spectrum ranging from strict competition to complete cooperation. We share some insights and our (perhaps in some cases provocative!) thoughts inspired by both prior research on an interesting 2-player game, Iterated Traveler’s Dilemma, and recent political developments in the United States of America and around the globe, arguing that, for strategic encounters that inherently value cooperative behavior, most existing solution concepts appear grossly inadequate as satisfactory models of individual rationality – and that new concepts of “solutions”, that is, of what it means to act rationally, are direly needed for such strategic interactions.