SEMINAR IN LOGIC AND GAMES AT CUNY
Iterated Regret Minimization: a new solution concept
Joe Halpern (Cornell)
Friday, December 9, 4:15 PM
Room 9205, CUNY Graduate Center
Abstract. For some well-known games, such as the Traveler’s Dilemma or the Centipede Game, traditional game-theoretic solution concepts — most notably Nash equilibrium — predict outcomes that are not consistent with empirical observations. We introduce a new solution concept, iterated regret minimization, which exhibits the same qualitative behavior as that observed in experiments in many games of interest, including Traveler’s Dilemma, the Centipede Game, Nash bargaining, and Bertrand competition. As the name suggests, iterated regret minimization involves the iterated deletion of strategies that do not minimize regret. We provide an epistemic characterization of iterated regret minimization, and show that it predicts reasonable outcomes in many situations of interest. (This represents joint work with Rafael Pass)
Iterated Regret Minimization is a useful skill applicable not only to game theory but also to business. My first boss taught me this 20 years ago when I was a young project manager for exclusive exhibition stands. At that time I lived in Kyiv and was lucky enough to get a job at company Carshe, a market leader in the design and construction of exhibition stands. I felt what a great honor it was for me to work in this company, but at the same time, a huge responsibility. Therefore, I was constantly worried about any issue. For example, that my estimate for the construction of an exhibition stand would be too high for the client and he would refuse to cooperate, or that I would forget to transfer some information to our production and we would not make a logo or some piece of furniture for the client’s stand. But thanks to the practical advice of my boss, I quickly coped with this anxiety and did my job well. For example, one of the important tips for Iterated Regret Minimization was to look at the situation in 5 years and imagine which decision I would regret more and whether I would regret it at all? It was a great school of life and business, and I am grateful to my boss and the Carshe company for it to this day.