Psychological Game Theory and the Role of Beliefs

In cases where individuals’ behaviour in games is not consistent with what the theory predicts, it is not uncommon for game theorists to explain the discrepancies by re-modelling the preferences of the players and assume different utility functions. While this task inevitably entails making behavioural assumptions on the players, it does not fall into the realm of psychological game theory; it simply means that the game originally under study was not very well defined in the first place.
In contrast, psychological game theory involves the second-order beliefs of a player (i.e. what someone believes that other people believe about him or her). These second-order beliefs may alter the strategic structure of the game, but this is a lot more complex than a change in the players’ utility functions. On another level, this chapter argues that if we accept that an individual may hold beliefs on his or her own actions, psychological game theory allows us to define psychological games involving only one individual. In these games, someone’s self-perception and self-concept might play a decisive role in what action will be chosen, and, in turn, the action chosen might shape this person’s self-perception and self-concept.