Revelation of the Day

I am going to turn over the microphone to Alex Tabarrok:

Economics assumes that people are rational, self-interested, lightning fast calculators. Obviously a bad assumption as we are constantly told. Chimps, on the other hand, are rational, self-interested, lightning fast calculators. That is the surprising conclusion to a great paper by Colin Camerer and co-authors. Camerer had chimps play versions of the matching pennies game also called the cat and mouse game. In the cat and mouse game each player can go left or go right. The cat wins when cat and mouse choose the same strategy. The mouse wins when they choose different strategies. In the simple version the best strategy is 50:50, toss a coin. When the payoffs change, however, the optimal strategies still involve randomization but they change in surprising and nonobvious ways.

Chimps play the cat and mouse game very well. First, the chimps converge on the Nash Equilibrium strategies. In one set of games the Nash equilibrium strategies had randomization frequencies of .5, .75 and .8 and the chimps played .5, .73 and .79. Second, when payoffs change the chimps adapt their strategies very quickly simply by observation of outcomes.

Camerer et al. also tested humans in similar games and they found that humans often deviate from NE play and they adjust their strategies more slowly when payoffs change, i.e. they learn more slowly! The only thing that Camerer didn’t do was to play humans against chimps in the same game. That would have been awesome!

Surely, nothing bad could come of this.