There is a growing amount of experimental evidence that suggests people oftendeviate from the predictions of game theory. Some scholars attempt to explain theobservations by introducing errors into behavioral models. However, most of thesemodifications are situation dependent and do not generalize. A new theory, called therational novice model, is introduced as an attempt to provide a general theory that takesaccount of erroneous behavior. The rational novice model is based on two centralprincipals. The first is that people systematically make inaccurate guesses when they areevaluating their options in a game-like situation. The second is that people treat theirdecisions similar to a portfolio problem. As a result, non optimal actions in a gametheoretic sense may be included in the rational novice strategy profile with positiveweights.
The rational novice model can be divided into two parts: the behavioral model andthe equilibrium concept. In a theoretical chapter, the mathematics of the behavioral modeland the equilibrium concept are introduced. The existence of the equilibrium is established.In addition, the Nash equilibrium is shown to be a special case of the rational noviceequilibrium. In another chapter, the rational novice model is applied to a voluntarycontribution game. Numerical methods were used to obtain the solution. The model isestimated with data obtained from the Palfrey and Prisbrey experimental study of thevoluntary contribution game. It is found that the rational novice model explains the databetter than the Nash model. Although a formal statistical test was not used, pseudo R^2analysis indicates that the rational novice model is better than a Probit model similar to theone used in the Palfrey and Prisbrey study.
The rational novice model is also applied to a first price sealed bid auction. Again,computing techniques were used to obtain a numerical solution. The data obtained fromthe Chen and Plott study were used to estimate the model. The rational novice modeloutperforms the CRRAM, the primary Nash model studied in the Chen and Plott study.However, the rational novice model is not the best amongst all models. A sophisticatedrule-of-thumb, called the SOPAM, offers the best explanation of the data.
