We develop a framework in which individuals’ preferences coevolve with their abilities to deceive others about their preferences and intentions. Specifically, individuals are characterised by (i) a level of cognitive sophistication and (ii) a subjective utility function. Increased cognition is costly, but higher-level individuals have the advantage of being able to deceive lower-level opponents about their preferences and intentions in some of the matches. In the remaining matches, the individuals observe each other's preferences. Our main result shows that, essentially, only efficient outcomes can be stable. Moreover, under additional mild assumptions, we show that an efficient outcome is stable if and only if the gain from unilateral deviation is smaller than the effective cost of deception in the environment.
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Valuable comments were provided by the anonymous associate editor and referees, Vince Crawford, Eddie Dekel, Jeffrey Ely, Itzhak Gilboa, Christoph Kuzmics, Larry Samuelson, Jörgen Weibull, and Okan Yilankaya, as well as participants at presentations at Oxford University, Queen Mary University, G.I.R.L.13 in Lund, the Toulouse Economics and Biology Workshop, DGL13 in Stockholm, the 25th International Conference on Game Theory at Stony Brook, and the Biological Basis of Preference and Strategic Behaviour 2015 conference at Simon Fraser University. Yuval Heller is grateful to the European Research Council for its financial support (starting grant #677057). Erik Mohlin is grateful to Handelsbankens forskningsstiftelser (grant #P2016-0079:1) and the Swedish Research Council (grant #2015-01751) for its financial support.
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- Depth of reasoning
- Evolution of preferences
- Indirect evolutionary approach
- Theory of mind