Kantian vs.

Nash
Underneath the complex studies done throughout the field of economics, a number of
assumptions have been made to quantify and predict human behavior. The particular field that
concentrates on human behavior and mental processes is recognized as the study of behavioral
economics. Behavior economics deals with trying to create models to analyze human behavior
in aggregate social situations. Studies also deal greatly with a particular field of mathematics
known as game theory. A large number of behavior economists study the assumptions made in
game theory and try to adapt neuroscience research to support or improve on current theories. In
recent years, a basic principle of economics has been shaken, as many of the baseline
assumptions are being found to be quite invalid. Criticisms over the widely accepted intuition of
Nash equilibrium have been found to be conditional, as many counterexamples can be alluded to.
In response to the invalidity of Nash, new theories modeling human behavior have been made to
try and explain these particular cases.
Ever since Princeton mathematician John Nash won the Nobel Prize for Economics in
1994, the Nash Equilibrium has become a corner stone for modern day game theory. Through the
analysis that is Nash, great insights have been made in a multitude of fields from economics,
finance, and even evolutionary biology. A Nash equilibrium is defined as the situation where no
player has any incentive to deviate from his or her designated strategies while leaving all other
agents actions constant. In other definitions, Nash equilibrium is been seen as the situation
where all players in a particular game are executing their best-response strategies. Nashs
intuition has brought reason for many market failures, as many Nash equilibria are not Pareto
efficient. But a critic (or flaw as some may say) of Nash equilibrium is its underlying
assumption. That assumption being that all players rationalize their actions by maximizing their

own payoffs or outcomes while holding others actions constant (Dixit). Nash rationality is
mathematically sound and plausible, but is it necessary correct?
Recent studies by California Institute of Technologys behavioral economist Dr. Colin F.
Camerer begs to differ. At an aggregate level, sample groups test to be far and near from
expected Nash equilibria. Reason simply being that different samples have different degrees of
strategic thinking. Nashs rationality assumes too great of an amount of strategic thinking by all
agents. For Nash equilibria to truly arise, even the slightest divination from best-response
strategies from any player would cease to expected outcome unavailable. Such great in-depth
thinking of multiple stages takes immense amounts of brain capacity even with practice. This
assumption is inaccurate, as players can differ in levels of strategic thought and ability
(Camerer).
Additionally, the Nash analysis assumes human behavior to be self-regarding and in
turn uncaring of others actions and beliefs as long as they do not interfere with ones economic
outcome and prosperity. In some situations, Nashs model of rationality is very accurate, but
studies have found that rarely do people think in their best interest completely. Many times,
players look for fair outcomes and tend to deviate towards equality between all players. Dr.
Camerer explains that behavior is two sided and very reactive to their fellow players actions.
When a self regarding player is confronted by players with strong differing preferences, the
rational player (in terms of Nash) may actually deviate from his own believes and mimic the
strategies of those of other preferences. The inverse is true as well; when a rationally bounded
player is met with a self interested players, the bounded players begins to show choices that
mimic that of Nash rationality. In the end, Dr. Camerer stresses that Nash equilibria may be

mathematically sound, but new models must be taken in considerations within different
situations or scenarios (Camerer).
In the search for more creative or insightful models, Dr. John E. Roemer of Yale
University has analyzed the existence of particular outcomes he has termed as the Kantian
equilibrium. Kantian equilibria is similar to that of Nash, but differ in that opposing player
actions are not left constant. In contrast, Kantian intuition proposes that players act by
considering a reality where all other players mimic the choices of his or her own, and thusly
acting upon the greater self regarding outcome. The term Kantian finds it origin from 18th
century German philosopher Immanuel Kant. Kants works are still recognized today for his
moral analysis of universializable actions. This parallels Kantian equilibrium as player are
assumed to act in terms of best response while universalizing their actions. Here, a player
considers the fact that all other players may possibly (or more likely) act similar to his or her
own actions, and decide on which reality is more suiting. Dr. Roemer then proposes that
Kantian intuition can stably maintain cooperation within the prisoners dilemma and that a
Kantian equilibrium is Pareto efficient. Dr. Roemer does so through a series of complicated high
level mathematical proofs, but shies away from hold this claim, but admitting that Nash
rationality still holds greater validity in some cases (Roemer 17).
Yet a key insight that is highlighted by Dr. Roemer, and is most necessary to be noted is
the differentiation between Kantian thinking and altruism. Altruism implies that players care
about their opponents well being, and personally choose actions of cooperations to help the
opponents outcome with no care of their own. This is a clear distinction between the two
methodologies of thought. Kantian equilibria are maintained by a mutual understanding by the
players that their outcomes are maximized through cooperation, not through a sort of charity. It

is this limits that make Roemers claim of solving the prisoners dilemma throughout Kantian
thought a bit conditional. Players continue to experience the incentive to not cooperate, but
through Kantian intuition; a cooperative outcome can be expected a majority of the time. In no
way are Kantian players feeling empathic for their opponent. They are similarly analyzing for the
greater outcome through the assumption that other players will take on similar preferences
(Roemer).
To deal deeper into the idea of Kantian equilibria, I devise a situation that I experience
everyday as a student. College educations are greatly considered as a means to acquiring a
desired occupation. With the recent economic downturn, jobs are seeming to become growingly
scarce, and the threat of job insecurity after college is daunting on many students. Personally, I
feel that there is a underlying incentives issue with students in todays education system.
Students are taking drastic measures to assure their grade point average remains higher in
comparison to their peers in hopes it will act as a signal to future employers for future
advancement. Education has now become a race for the highest GPA, while the main objective
behind it seems to become lost in the competition. Students do not care about what their
learning in class, just that their grade point average doesnt suffer in the process. Looking from a
game theory perspective, the failures can be paralleled to that of the prisoners dilemma, where
the strategies of each student are the the decisions between whether to complete their course
work honestly or through the various methods of academic dishonesty.
Assuming that the only real payoff students value is their final grade at the end of each
term, I consider maximizing the actual differentiation between cheating and not cheating GPAs
as desired payoffs. Students may find the process of cheating useless if it didnt make such a
drastic difference to their final grade. I am additionally making the assumption that GPA are only

valued in comparatively to a students peers. A student only values an increase in GPA if all
other students grades are held constant. This is justified by the fact that most students would
find greater value in differentiating themselves from the normal student body as gifted with a
higher comparative GPA. Therefore, the choice to cheat by as student would only be of value as
long as all other student do not cheat. This relates back to the Nash assumption as the student
perceives cheating as rational when holding all other students grades constant. Through a few
steps of strategic thinking, we find that the Nash equilibrium is boundless, as student will
constantly try get the higher grade and continue cheating. Such an outcome can not be optimal as
students are being drawn away from actually absorbing their lessons, and create a false status of
their abilities.
On the other hand, if students were to use Kantian intuition is such situations; the
students could recognize the endless pattern, and possibly come to cooperatively agreement on
not cheating. Though this outcome is idealistic,after its endless repetition; students may come to
realize that they can signal their talents in other forms than simply a higher grade point average.
Such an outcome would be optimal and rational by Kantian ethics. Students would have to
consider that fact that if they cheat, other students would soon follow. Soon making the benefits
of cheating worthless as all students would receiving similar results. If such thought processes
were implement in other strategic situations, cases like the prisoners dilemma or the tragedy of
common could be better handled and utilized.
At the end, Kantian equilibrium still does not hold the stability and recognition of Nashs
best-response analysis. Such assumptions can bring reason to many of todays issues, but
research in accurately modeling human behavior is still very premature. It is solutions to these
dilemmas that many behavior economists are still in search of. Nash and Kantian equilibria can

and may exist in any strategic scenarios, but the question of which theory has great validity is
still inconclusive to this day.

References
Camerer, Colin F. and Fehr, Ernst. When Does Economic Man Dominate Social Behavior?.
ScienceMag.org:Vol. 331:47-52. 6 Jan. 2006. Web. 24 Nov. 2013.
Dixit, Avinash K. and Skeath, Susan. Games of Strategy. W.W. Norton & Company, New York
1999. 3rd edition.
Roemer, John E. Kantian Equilibrium. The Scandinavian Journal of Economics. 112(1), 1-12.
2010. Web. 20 Nov. 2013.