Eyal Winter, (Silverzweig Professor of Economics, The Center for the Study of Rationality - Director, The Hebrew University of Jerusalem, Israel)
Abstract
We introduce emotions into an equilibrium notion. In a mental Equilibrium each player "selects" an emotional state which determines the player's preferences over the outcomes of the game. These preferences typically differ from the players' material preferences. The emotional states interact to play a Nash equilibrium and in addition each player's emotional state must be a best response (with respect to material preferences) to the emotional states of the others. We discuss the concept behind the definition of mental equilibrium and show that this behavioral equilibrium notion organizes quite well the results of some of the popular experiments in the experimental economics literature. Based on data collected from the British TV game "Split or Steal" we will discuss the interesting phenomenon of implicit coordination in games, and will demonstrate how the theory of Mental Equilibrium explains it.
