Essays on Psychological Game Theory and Ambiguity

This thesis mainly focuses on two themes, psychological game theory and quantum decision theory. Chapter 2 and Chapter 3 study how emotions and other-regarding preferences affect classical results in game theory. Chapter 4 tests the quantum decision theory model of the Ellsberg paradox that has been developed by al-Nowaihi and Dhami (2017). Chapter 2 models guilt-aversion/surprise-seeking, and the attribution of intentions behind these emotions in a one-shot public goods game. Using the induced beliefs method in both within-subjects design (strategy method) and between-subjects design, the experimental results show that guilt-aversion is predominant relative to surprise-seeking, and the attribution of intentions behind these emotions are important. Chapter 3 compares three main competing explanations for the choice of effort by workers in a gift exchange game - classical reciprocity (Akerlofs action-based formulation, Malmendier and Schmidt (2017) formulation) and belief-based reciprocity (psychological game theory). Experimental results show that all models explain well about the workers choices of efforts, and psychological game theory can predict their emotions of guilt. However, Akerlofs model is the best in terms of parsimony and fit. Chapter 4 experimentally tests the matching probabilities for the Ellsberg paradox, which is based on a parameter-free theoretical derivation using quantum probabilities rather than Kolmogorov probabilities (al-Nowaihi and Dhami, 2017). The experimental results are consistent with the quantum model, and subjects are ambiguity seeking for the low probabilities but ambiguity averse for the medium and high probabilities