Many weaknesses of game theory are cured by new models that embody simple cognitive principles, while maintaining the formalism and generality that makes game theory useful. Social preference models can generate team reasoning by combining reciprocation and correlated equilibrium. Models of limited iterated thinking explain data better than equilibrium models do; and they self-repair problems of implausibility and multiplicity of equilibria.

How is one to act so as to do as well as possible according to one’s ranking of the possible outcomes? How—as it may be put—is one to act rationally? Sometimes the possible outcomes are not under one’s own control: an outcome is a combination of one’s own and another agent’s action. Often, then, one must try to work out what the other agent will do, in order to do as well as possible in one’s own lights. It is situations (...) of this sort—situations of “strategic interaction”—that most concern the game theorist. (shrink)