DHB Games Theory, Culture, and Institutional Path Dependence.

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Culture sits between institutions and economic or political achievement, affecting performance. Whether looking horizontally across countries or vertically through time, one lesson is clear: the efficacy of institutions such as markets, democracies, and legal systems hinges upon behavior, particularly on the tendency for people to cooperate with and trust one another. A theory of institutional performance, therefore, must come to grips with culture. We meet this challenge with a modification of the traditional game-theoretic approach. Game theory, the preferred formal framework for analyzing institutions, assumes isolated, context-free strategic environments and optimal behavior within them. Thus, game theory would seem to be at a loss to explain the patterned, contextual, and sometimes suboptimal behavior we think of as culture, let alone its emergence and persistence across space and time. We have developed a method to examine how people respond to multiple institutional environments---games---simultaneously (hence the games theory moniker). Preliminary models suggest that when purposeful, incentive-driven agents confront multiple strategic situations simultaneously and when cognitive effort is costly, culturally distinct behavior may emerge and be unavoidable. Therefore, a second goal is to uncover how the addition of new institutions---including timing and combinations with other institutions---may affect culture, creating a more profitable and peaceful climate. The proposed research consists of four parts. First, the researchers construct agent based and game theoretic models that produce cultural behavior. Second, they conduct experiments with human subjects to corroborate those agent based models. Third, they define a classification to clarify and refine what is meant by path dependence, highlighting a distinction between processes that depend on the path of history and processes that depend only on the set of historical events but not their order. Fourth, they construct an agent based model that tests whether path dependence emerges that they then also test with human subjects. This research effort brings together a political scientist trained in the study of institutions, a complex systems scholar who connects mathematical and agent based models, and an experimental and theoretical economist who specializes in learning and public economics. All three investigators are well versed in game theory which will serve as a translating language between the various methodologies applied.