Hidden Games

1. Game theory unveils hidden incentives behind seemingly irrational behaviors

Game theory is a mathematical tool kit designed to help us figure out how people, firms, countries, and so on will behave in interactive settings—when it matters not only what they do but also what others do.

Hidden games shape behavior. Game theory provides a framework for understanding seemingly irrational human behaviors by uncovering hidden incentives and strategic interactions. This approach reveals that many puzzling actions are actually rational responses to complex social situations.

Evolution and learning optimize unconsciously. While individuals may not consciously optimize their behavior, evolutionary and learning processes lead to strategies that approach game-theoretic equilibria. This explains how seemingly irrational behaviors can persist and spread within populations.

Key concepts:

• Nash equilibrium: A situation where no player can benefit by unilaterally changing their strategy
• Subgame perfection: A refinement of Nash equilibrium that requires optimal play in all subgames
• Comparative statics: Analyzing how changes in one variable affect equilibrium outcomes

2. Costly signaling explains our fascination with luxury and ostentatious displays

Mosaics are no more effective a ground covering than regular tile. Gardens are pretty, sure, but couldn't the Persians have amused themselves with a pastime that didn't involve intensive use of precious water?

Waste signals quality. Costly signaling theory explains why individuals engage in seemingly wasteful behaviors or displays. These actions serve as reliable signals of underlying qualities (e.g., wealth, fitness) because they are more costly for low-quality individuals to produce.

Luxury goods as signals. Our fascination with luxury items and ostentatious displays can be understood as a form of costly signaling. By demonstrating the ability to "waste" resources, individuals signal their wealth, status, or other desirable qualities to potential mates, allies, or competitors.

Examples of costly signals:

• Peacocks' elaborate tails
• Expensive watches and jewelry
• Elaborate ceremonies and rituals
• Difficult-to-master artistic or athletic skills

3. Altruism and cooperation emerge from repeated interactions and social norms

People tend to respond to questions like these with proximate answers, for example: We love tannic wines because they are more interesting. We love crafts because it is satisfying to work on discrete projects with a finite timeline, where we can quickly see the end results, or we develop a passion for research because we like the freedom to engage in long, detailed explorations of a particular topic and really become experts in it.

Cooperation requires repetition. The repeated prisoner's dilemma model shows how cooperation can emerge in situations where short-term self-interest would lead to defection. When interactions are repeated, the threat of future punishment can sustain cooperative behavior.

Norms enforce cooperation. Social norms and institutions play a crucial role in maintaining cooperation within larger groups. These norms often involve third-party punishment and higher-order beliefs about others' expectations and behaviors.

Key factors in sustaining cooperation:

• High likelihood of future interactions (high δ)
• Ability to observe and punish non-cooperative behavior
• Shared expectations about appropriate behavior
• Higher-order beliefs (beliefs about others' beliefs)

4. Evidence games reveal why we engage in biased revelation, search, and testing

Even though people have access to (or trust) different sources, you'd expect them to eventually learn that their beliefs are off-kilter and correct them. Why don't they update their beliefs when they encounter people who disagree with them or have access to different sources?

Strategic information manipulation. Evidence games model how individuals strategically reveal, search for, and generate evidence when trying to persuade others. These models explain why people often engage in biased revelation, biased search, and confirmatory testing.

Persuasion motives drive bias. When individuals have a motive to persuade rather than inform, they will selectively reveal supportive evidence, search primarily for confirming information, and design tests that are likely to yield favorable results.

Implications of evidence games:

• Biased revelation: Only sharing favorable information
• Biased search: Selectively seeking confirming evidence
• Confirmatory testing: Designing experiments likely to support a preferred conclusion
• Persistence of disagreement despite access to contradictory information

5. Motivated reasoning stems from internalized persuasion strategies

If beliefs update when you get supportive evidence but not for any of the more negative stuff, then of course you'll end up overconfident. But, notice, you end up overconfident in a very particular way: your overconfidence reflects all the supportive evidence you can muster but not how hard you had to search for it, what you might be hiding, or how flimsy that evidence actually is.

Internalized spin. Motivated reasoning can be understood as an internalized form of the persuasion strategies modeled in evidence games. By adopting biased beliefs, individuals become more effective at persuading others and avoiding cognitive dissonance.

Asymmetric updating. People tend to update their beliefs more readily in response to favorable information than unfavorable information. This leads to overconfidence and the persistence of false beliefs, even in the face of contradictory evidence.

Characteristics of motivated reasoning:

• Selective exposure to information
• Biased interpretation of ambiguous evidence
• Discounting of unfavorable information
• Asymmetric updating of beliefs
• Overconfidence in preferred conclusions

6. Higher-order beliefs shape our ability to coordinate and communicate indirectly

First-order beliefs—what you think happened—aren't all that matters for coordinated action. What you think others think (second-order beliefs) and what you think others think you think (third-order beliefs and so on) can matter as well.

Coordination requires common knowledge. Higher-order beliefs play a crucial role in coordinating actions and expectations. For effective coordination, it's not enough to know something; you must also know that others know it, and that they know that you know, and so on.

Indirect communication leverages uncertainty. People often communicate indirectly to influence first-order beliefs without affecting higher-order beliefs. This allows for plausible deniability and the ability to convey information without committing to a particular course of action.

Implications of higher-order beliefs:

• Importance of public signals and common knowledge
• Role of ceremonies and symbolic gestures in coordination
• Use of indirect speech and innuendo
• Difficulty of coordinating on continuous variables
• Persistence of categorical norms and distinctions

7. Our sense of justice is constrained by the need for common knowledge

Did Dr. Reese harm Cap out of malice or in self-defense? That might be hard to verify. But whether or not Cap dies isn't.

Justice requires coordination. Our sense of justice is shaped by the need to coordinate punishments and expectations within a society. This leads to some counterintuitive features, such as the focus on outcomes rather than intentions and the use of categorical distinctions.

Moral luck and proportionality. The influence of moral luck and the difficulty of proportional punishment can be explained by the need for commonly observable signals. Outcomes are more easily verified than intentions, leading to their outsized influence on moral judgments.

Constraints on justice norms:

• Focus on easily observable outcomes
• Use of categorical distinctions (e.g., species membership for rights)
• Difficulty of proportional punishment
• Persistence of seemingly arbitrary distinctions (e.g., omission vs. commission)
• Need for public and undeniable signals of transgression and punishment

8. Passions and intrinsic motivation are shaped by primary rewards, not conscious desires

Passions are designed to motivate us to invest in developing skills and expertise that are likely to reap material and social benefits later on.

Primary rewards drive motivation. Our passions and intrinsic motivations are shaped by primary rewards – fundamental benefits like social status, resources, and reproductive opportunities – rather than conscious desires or immediate psychological rewards.

Optimal time investment. The development of passions can be understood as an optimal allocation of time and effort towards activities likely to yield significant future rewards. This explains why people become passionate about some activities but not others, and why passion is not always easily cultivated.

Factors influencing passion development:

• Potential for social rewards and recognition
• Likelihood of becoming exceptionally skilled
• Relative lack of alternative opportunities
• Presence of immediate feedback and clear goals
• Balance between challenge and ability (flow state)
• Social signals about the value of the activity

Human behavior, from our fascination with luxury goods to our sense of justice, can be understood through the lens of game theory and the hidden incentives that shape our actions and beliefs. By focusing on primary rewards and strategic interactions, we can uncover the logic behind seemingly irrational or puzzling behaviors, revealing the hidden games that govern our social world.

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Last updated: March 3, 2025