Leonidas, Spiliopoulos (2009): Learning backward induction: a neural network agent approach. Published in: AgentBased Approaches in Economic and Social Complex Systems VI, edn. 2011, Springer, Japan (2011)
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Abstract
This paper addresses the question of whether neural networks (NNs), a realistic cognitive model of human information processing, can learn to backward induce in a twostage game with a unique subgameperfect Nash equilibrium. The NNs were found to predict the Nash equilibrium approximately 70% of the time in new games. Similarly to humans, the neural network agents are also found to suffer from subgame and truncation inconsistency, supporting the contention that they are appropriate models of general learning in humans. The agents were found to behave in a bounded rational manner as a result of the endogenous emergence of decision heuristics. In particular a very simple heuristic socialmax, that chooses the cell with the highest social payoff explains their behavior approximately 60% of the time, whereas the ownmax heuristic that simply chooses the cell with the maximum payoff for that agent fares worse explaining behavior roughly 38%, albeit still significantly better than chance. These two heuristics were found to be ecologically valid for the backward induction problem as they predicted the Nash equilibrium in 67% and 50% of the games respectively. Compared to various standard classification algorithms, the NNs were found to be only slightly more accurate than standard discriminant analyses. However, the latter do not model the dynamic learning process and have an ad hoc postulated functional form. In contrast, a NN agent’s behavior evolves with experience and is capable of taking on any functional form according to the universal approximation theorem.
Item Type:  MPRA Paper 

Original Title:  Learning backward induction: a neural network agent approach 
Language:  English 
Keywords:  Agent based computational economics; Backward induction; Learning models; Behavioral game theory; Simulations; Complex adaptive systems; Artificial intelligence; Neural networks 
Subjects:  C  Mathematical and Quantitative Methods > C4  Econometric and Statistical Methods: Special Topics > C45  Neural Networks and Related Topics C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C73  Stochastic and Dynamic Games; Evolutionary Games; Repeated Games 
Item ID:  40621 
Depositing User:  Leonidas Spiliopoulos 
Date Deposited:  12. Aug 2012 23:02 
Last Modified:  16. Feb 2013 02:11 
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URI:  http://mpra.ub.unimuenchen.de/id/eprint/40621 
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