It can be smart to be dumb

An important problem in game theory is why bounded rationality occurs, e.g., why altruism to non-kin occurs. Previous explanations involved computational limitations of the players, repeated play among the players etc. As an alternative, we introduce a pre-play step in which each player i chooses a “persona”, i.e., a ficticious utility function she commits to use in the game. By adopting different personas, player i induces different moves by the other players in the game. Sometimes by adopting a “bounded rational” persona, player i induces moves by the other players that increase i’s true utility function. In such cases, player i’s acting in a “bounded rational” way can be optimal for i. This phenomenon can explain some experimental observations concerning the prisoner’s dilemma, the ultimatum game, and the traveler’s dilemma.