Game Theory and the Law

Abstract

Classical game theory analyses strategic interactions under extreme idealisations. It assumes cognitively unconstrained players with common knowledge concerning game forms, preferences, and rationality. Such ideal theory is highly relevant for human self-understanding as a rational being or what Selten called ‘rationology’. Yet, ideal theory is highly irrelevant for real actors who are in Selten’s sense boundedly rational. Starting from essential features of real bargaining problems, elements of Selten’s ‘micro-psychological’ and Raiffa’s ‘telescopic’ behavioural bargaining theory are introduced. From this, an outline of a workable rationality approach to bargaining emerges. It suggests relying on telescopic elements from Raiffa’s model to provide general outcome orientation and on insights from Selten’s aspiration adaptation model of individual decision making to develop process-sensitive action advice. A bird’s eye view of a prominent recent case of ‘bargaining in the shadow of the courts’ shows a surprisingly good fit of outcomes with the implications of Raiffa’s telescopic approach while remaining compatible with a Seltenian process. Though due to a lack of specific information because the micro-foundations for the telescopic theory cannot be provided, it is at least clear how further case studies and experiments might be put to work here.