Econtwitter, it is time for that twice-annual celebration, in which we model as individual decision problems that which should properly be modeled as a psychological game.

https://www.sciencedirect.com/science/article/abs/pii/0899825689900055

(The other day is Christmas.) https://twitter.com/econtalker/status/1359548279202197506

It would save a lot of time if, the next time someone writes a neoclassical take on gift giving, they include the warning, “this analysis assumes that I do not directly care what the recipient thinks of me, what they think I think of them, and so on.”

@EconTalker , this thread and the linked paper show the subtlety of what it means to ‘maximize expected utility’. A narrow reading of utility is your own self interest or material well-being.

But modern game theory can let your utility depend on other players’ material well-being. It can can even depend on whether other players are surprised / angry / grateful.

And for a broad enough notion of ‘utility’, the claim that rationality means maximizing it seems less narrow.