1. 5. Alternative Approaches

2. Strategic Bahavior in Business and Econ 1. Introduction 2. Individual Decision Making 3. Basic Topics in Game Theory 4. The Theories and the Real World 5. Alternative Approaches 5.1 Psychology 5.2 Evolution 5.3 Artificial Intelligence

3. Strategic Bahavior in Business and Econ Computer Science tools for the Social Sciences Computer Science contains several tools and techniques that are useful to the Social Sciences. Among others we have: Theoretical artifacts that represent “computer behavior” (Artificial Intelligence). Some can be adapted to represent“human behavior” Computational devices and techniques (soft and hardware) that can be used to simulate human behavior

4. Strategic Bahavior in Business and Econ Theoretical artifacts Consist of theoretical models of behavior designed and developed to represent and to study the functioning of computers. They are the basic tools of AI: Cellular Automata Turing Machines Neural Networks Perceptrons Finite Automata · · ·

5. Strategic Bahavior in Business and Econ Finite Automata A Finite Automaton (Automaton for short) is a “device” that consists of: Several internal states that represent the different “moods” of the automaton Ex: “happy”, “sad” Several possible outputs that represent the different actions that the automaton can take at each state Ex: “give flowers”, “give nothing” Several possible inputs that represent the different information that the automaton can receive from the environment at each state Ex: “a smile”, “nothing” Several transitions that represent the change from one state to another depending on the input obtained from the environment

6. Strategic Bahavior in Business and Econ Example: The “regular” Lion In the presence of another lion, act friendly unless it is behaves aggressively. In such case you should act aggressively as well In the presence of a zebra, chase it and share the meal with the other lions and cabs States: “Relaxed”, “Aggressive” Actions: “Friendly”, “Attack” Inputs: “Friendly Lion”, “Aggressive Lion” “Friendly zebra”, “Aggressive zebra” Transitions: (in the graph)

7. Strategic Bahavior in Business and Econ Example: The “regular” Lion FriendlyAttack Friendly Lion Aggressive Lion Aggressive zebra Friendly zebra Relaxed Aggressive

8. Strategic Bahavior in Business and Econ Example: The “crazy” Lion In the presence of another lion, chase it and share the meal with the other lions and cabs In the presence of a zebra, act friendly unless it is behaves aggressively. In such case you should act aggressively as well

9. Strategic Bahavior in Business and Econ Example: The “crazy” Lion FriendlyAttack Friendly zebra Aggressive zebra Aggressive Lion Friendly Lion RelaxedAggressive

10. Strategic Bahavior in Business and Econ Example: The “friendly” Lion In the presence of another lion, act friendly unless it is behaves aggressively. In such case you should act aggressively as well In the presence of a zebra, act friendly unless it is behaves aggressively. In such case you should act aggressively as well

11. Strategic Bahavior in Business and Econ Example: The “friendly” Lion FriendlyAttack Friendly zebra Aggressive zebra Aggressive Lion Friendly Lion RelaxedAggressive

12. Strategic Bahavior in Business and Econ Example: The Repeated Prisoners' Dilemma

13. Strategic Bahavior in Business and Econ Example: The Repeated Prisoners' Dilemma

14. Strategic Bahavior in Business and Econ The contributions of automata Controlling the different elements of the automaton we can represent different degrees of rationality (larger memory, different information processing power, different number of possible actions, etc) Fixing the size of the automata available to the players of a game, we control the degree of complexity of the strategies they can choose Automata, though, does not control for the computational ability The main results from “fully rational” game theory do not change much if we consider “boundedly rational” game theory with automata representation

15. Strategic Bahavior in Business and Econ Computer Science tools for the Social Sciences Computer Science contains several tools and techniques that are useful to the Social Sciences. Among others we have: Theoretical constructs that represent “computer behavior” (Artificial Intelligence). Some can be adapted to represent“human behavior” Computational devices and techniques (soft and hardware) that can be used to simulate human behavior

16. Strategic Bahavior in Business and Econ Computer Simulations Using the power of modern computers we can simulate the behavior of economic agents with a high degree or realism. This way we do not need to make strong simplifying assumptions as in the formal mathematical models

17. Strategic Bahavior in Business and Econ

19. Examples: The Schellling's Segregation Model The Hotelling's Spatial Competition Model

20. Strategic Bahavior in Business and Econ The First Simulation in Economics

21. Strategic Bahavior in Business and Econ The First Simulation in Economics

22. Strategic Bahavior in Business and Econ Evolution and Artificial Intelligence We can combine: The theoretical artifacts from AI (automata) The ideas from evolutionary theory The computational techniques (simulations) To control for: The complexity of the strategies and the information processing The computational abilities The need for simplifying assumptions