When you're making a deal, what's going on in your brain? | Colin Camerer

Summary

This talk explores the strategizing brain using game theory and neuroscience to understand social interactions when value is at stake. It delves into cognitive hierarchy theory and Nash equilibrium analysis, demonstrating how people make decisions in games and real-life scenarios. The speaker presents data from experiments involving number selection games and bargaining, highlighting brain activity patterns in social decision-making. Furthermore, the talk compares human strategic thinking with that of chimpanzees, revealing that chimps may be better competitors according to game theory.

Takeaways

• 🧠 The talk focuses on understanding the strategizing brain using game theory and neuroscience.
• 📊 Game theory provides a mathematical taxonomy of social life, predicting actions and beliefs in competitive and cooperative situations.
• 🎲 A simple game illustrates strategic thinking: players choose numbers, and the winner is closest to two-thirds of the average.
• 🤔 People strategize at different levels, from simple averages to more complex recursive thinking.
• 🧩 Cognitive hierarchy theory explains varying levels of strategic thinking and its limitations.
• 📉 Nash equilibrium is a state where everyone has figured out what others will do, but it's not always practical for first-time players.
• 🧠 Brain activity during strategic games shows specific areas involved in 'theory of mind' and mentalizing.
• ⚖️ A bargaining game reveals how people negotiate over unknown amounts, with brain activity indicating agreement or disagreement.
• 🐒 Chimpanzees outperform humans in strategic games, adhering closely to game theory predictions.
• 🔍 The study of brain activity in strategic contexts can inform about social interactions, development, and resolving conflicts efficiently.

Q & A

What is the main topic of the talk?

The main topic of the talk is the strategizing brain, which combines tools from game theory and neuroscience to understand social interactions when value is at stake.

How is game theory described in the script?

Game theory is described as a branch of applied mathematics, primarily used in economics, political science, and biology, providing a mathematical framework to predict behaviors in social situations where everyone's actions affect each other.

What is the simple game introduced to illustrate strategic thinking?

The simple game involves participants choosing a number from zero to 100, computing the average, and awarding a prize to the person closest to two-thirds of the average. It serves as a model for strategic decision-making in various competitive and cooperative scenarios.

What does the cognitive hierarchy theory suggest about human strategic thinking?

The cognitive hierarchy theory suggests that people think in layers or steps, with each step representing a deeper level of strategic consideration. It also accounts for how many people stop at different levels of thinking.

What is the Nash equilibrium and how does it relate to the simple game?

The Nash equilibrium is a concept in game theory where every player has figured out what the others will do and acts accordingly. In the context of the simple game, the Nash equilibrium would predict that everyone plays zero, as they all want to be below the others.

What does the experiment involving 9,000 people reveal about human behavior in the simple game?

The experiment reveals that people tend to choose numbers around 33 and 22, indicating one or two steps of strategic thinking, rather than the Nash equilibrium prediction of zero. It also shows a minority choosing zero or one, likely adhering to equilibrium analysis.

Which brain areas are activated when people play the simple game against humans versus computers?

When playing against humans, the brain activates areas associated with the 'theory of mind' circuit, including the medial prefrontal cortex, dorsomedial prefrontal cortex, ventromedial prefrontal cortex, and anterior cingulate. These areas are less active when playing against a computer.

What insights can be gained from the bargaining game involving EEG electrodes?

The bargaining game EEG study suggests that early brain activity patterns can potentially predict the likelihood of reaching an agreement or disagreement, which could have applications in conflict resolution and negotiation strategies.

How do chimpanzees perform in the memory test conducted by the Primate Research Institute?

Chimpanzees perform exceptionally well in the memory test, quickly and accurately recalling a sequence of numbers after a brief exposure and using this information to obtain a reward.

What does Tetsuro Matsuzawa's 'cognitive trade-off hypothesis' propose about chimpanzees?

The 'cognitive trade-off hypothesis' suggests that chimpanzees may have developed and preserved strategic thinking abilities that are crucial for negotiating status and winning competitions, even at the expense of other cognitive functions.

How do chimpanzees compare to humans in terms of adhering to game theory predictions in the matching and mismatching game?

Chimpanzees adhere more closely to game theory predictions, adjusting their behavior in response to changes in payoffs more accurately than humans, indicating a stronger competitive instinct in chimpanzees.

Outlines

00:00

🧠 Understanding Strategic Interactions

The speaker introduces the concept of the strategizing brain, combining game theory and neuroscience to explore social interactions where value is at stake. Game theory, a mathematical framework originating from economics and political science, categorizes social behaviors like competition and cooperation. A simple game illustrates strategic decision-making, where participants choose numbers to win a prize based on the average of all choices. The speaker discusses cognitive hierarchy theory, which explains the limitations in people's strategic thinking, and contrasts it with Nash equilibrium, a concept that assumes all players have perfect knowledge of each other's strategies. Empirical data from a large-scale experiment shows how people's choices cluster around certain numbers, revealing insights into human behavior in strategic situations.

05:01

🧬 Brain Activity in Social Bargaining

This section delves into a bargaining game scenario where two players negotiate to divide a sum of money within a time limit. The game is used to study brain activity using EEG electrodes, with one player informed about the total amount and the other not. The study reveals that brain activity patterns differ significantly between one-step and two-step strategic thinkers. The speaker suggests potential applications of this knowledge, such as predicting social behaviors or understanding adolescent brain development. The bargaining game also highlights the neural correlates of agreement and disagreement, showing that brain activity synchronization can predict the outcome of negotiations.

10:01

🦍 Chimps vs. Humans in Strategic Competition

The final paragraph explores the differences in strategic thinking between humans and chimpanzees, our closest genetic relatives. A memory test from the Primate Research Institute in Kyoto demonstrates the impressive working memory of chimps. The 'cognitive trade-off hypothesis' posits that chimps may have evolved to excel in strategic thinking to negotiate status within their social hierarchy. An interactive game between chimps, mediated by computers, shows that they adjust their strategies in response to changing payoffs, closely aligning with game theory predictions. In contrast, human subjects in the study respond less predictably to changes in payoffs, suggesting that chimps may be 'better' competitors in strategic situations as judged by game theory.

Keywords

💡Strategizing Brain

The 'strategizing brain' refers to the cognitive processes involved in planning and decision-making, particularly when interacting in social contexts where value is at stake. In the video, this concept is central to understanding how people use a combination of game theory and neuroscience to predict and analyze social interactions. The script discusses how the brain strategizes in various scenarios, including economic games and social bargaining.

💡Game Theory

Game theory is an interdisciplinary field that combines elements of mathematics, economics, and psychology to study strategic interactions among rational decision-makers. It is used to predict the likely actions of individuals when their outcomes are interdependent. In the script, game theory is applied to understand social behaviors such as competition, cooperation, and bargaining, with examples like the 'beauty contest' game and bargaining scenarios.

💡Neuroscience

Neuroscience is the scientific study of the nervous system, which includes the brain. It seeks to understand how the brain functions and how it gives rise to behaviors and cognitive processes. The video uses neuroscience to explore the biological underpinnings of strategic thinking, such as the brain activity observed during game playing and social interactions.

💡Cognitive Hierarchy Theory

The cognitive hierarchy theory is a model in game theory that proposes a hierarchy of thinking processes individuals go through when making decisions. It suggests that players think at different levels of depth, with more sophisticated players considering the strategies of others at deeper levels. The script uses this theory to analyze how people approach the 'beauty contest' game, with some choosing numbers based on one or two steps of strategic thinking.

💡Equilibrium Analysis

Equilibrium analysis in game theory refers to the study of stable states in strategic interactions where no player has an incentive to change their strategy unilaterally. The concept of equilibrium is central to understanding how players reach a consistent set of actions. In the script, equilibrium analysis is contrasted with cognitive hierarchy theory, highlighting different predictions about player behavior in games.

💡Bargaining Game

A bargaining game is a type of game where two or more parties negotiate over the distribution of resources or outcomes. The script describes a specific bargaining game where two players must agree on a division of money within a time limit, with one player informed about the total amount and the other not, illustrating the dynamics of information asymmetry in negotiations.

💡Theory of Mind

Theory of mind is the ability to attribute mental states to oneself and others and to understand that others have beliefs, desires, and intentions that may differ from one's own. In the video, it is related to the brain's 'mentalizing circuit' that is active when individuals try to predict what others might do in strategic situations, such as during game playing.

💡fMRI

Functional magnetic resonance imaging (fMRI) is a neuroimaging procedure that measures and maps the brain's activity by detecting changes associated with blood flow. In the script, fMRI is used to scan participants' brains while they play games, providing insights into the neural correlates of strategic thinking and social interaction.

💡EEG

Electroencephalography (EEG) is a method to measure, with the help of electrodes placed on the scalp, the electrical activity produced by the brain. The script mentions EEG being used to simultaneously scan the brains of two players during a bargaining game, allowing for the study of synchronized brain activity and its relation to successful negotiations.

💡Nash Equilibrium

Named after John Nash, the Nash equilibrium is a concept in game theory where the optimal outcome of a game is one where no player has an incentive to deviate from their chosen strategy after considering an opponent's choice. The script discusses how the behavior of chimpanzees in a game closely adheres to the predictions of Nash equilibrium, suggesting a high level of strategic competence.

💡Cognitive Trade-off Hypothesis

The cognitive trade-off hypothesis suggests that different cognitive abilities may be prioritized in evolution based on their importance for survival and reproduction. In the context of the video, it is proposed that chimpanzees may have developed strategic thinking abilities to negotiate status within their social groups, which is tested through their performance in games against each other.

Highlights

The combination of game theory and neuroscience is used to understand social interactions when value is at stake.

Game theory provides a mathematical framework to predict behaviors in social scenarios involving mutual influence.

A simple game is introduced where participants choose numbers to win a prize based on the average and two-thirds of that average.

The game serves as a model for strategic decision-making, such as timing sales in a rising stock market.

Cognitive hierarchy theory is discussed, illustrating the levels of strategic thinking people employ.

Nash equilibrium analysis is contrasted with cognitive hierarchy, showing different predictions for game outcomes.

Empirical data from 9,000 participants in a newspaper contest supports the cognitive hierarchy theory.

fMRI scans reveal brain activity differences when people play games against humans versus computers.

Brain regions associated with 'theory of mind' are activated more when interacting with humans in games.

One- and two-step strategic thinkers show different brain activities when playing against humans.

Brain activity analysis could potentially predict social skills or naivety, and inform studies on adolescent brain development.

A bargaining game using EEG electrodes is introduced to study real-time brain activity during negotiations.

Brain activity synchronization and directionality can indicate the likelihood of agreement or disagreement in negotiations.

Chimpanzees outperform humans in a game theory context, adhering more closely to predicted strategies.

Chimpanzees' strategic competence in games may be linked to their importance in status negotiations.

Humans appear to engage in limited strategic thinking compared to the more responsive strategic behavior of chimpanzees.

The study provides insights into brain evolution, suggesting humans may prioritize social skills differently than chimpanzees.

Transcripts

Transcriber: Joseph Geni Reviewer: Thu-Huong Ha

I'm going to talk about the strategizing brain.

We're going to use an unusual combination of tools

from game theory and neuroscience

to understand how people interact socially when value is on the line.

So game theory is a branch of, originally, applied mathematics,

used mostly in economics and political science, a little bit in biology,

that gives us a mathematical taxonomy of social life,

and it predicts what people are likely to do

and believe others will do

in cases where everyone's actions affect everyone else.

That's a lot of things: competition, cooperation, bargaining,

games like hide-and-seek and poker.

Here's a simple game to get us started.

Everyone chooses a number from zero to 100.

We're going to compute the average of those numbers,

and whoever's closest to two-thirds of the average wins a fixed prize.

So you want to be a little bit below the average number

but not too far below,

and everyone else wants to be a little bit below the average number as well.

Think about what you might pick.

As you're thinking,

this is a toy model of something like selling in the stock market

during a rising market:

You don't want to sell too early, because you miss out on profits,

but you don't want to wait too late, to when everyone else sells,

triggering a crash.

You want to be a little bit ahead of the competition, but not too far ahead.

OK, here's two theories about how people might think about this,

then we'll see some data.

Some of these will sound familiar

because you probably are thinking that way.

I'm using my brain theory to see.

A lot of people say, "I really don't know what people are going to pick,

so I think the average will be 50" -- they're not being strategic at all --

and "I'll pick two-thirds of 50, that's 33."

That's a start.

Other people, who are a little more sophisticated,

using more working memory,

say, "I think people will pick 33,

because they're going to pick a response to 50,

and so I'll pick 22, which is two-thirds of 33."

They're doing one extra step of thinking, two steps.

That's better.

Of course, in principle, you could do three, four or more,

but it starts to get very difficult.

Just like in language and other domains,

we know that it's hard for people to parse very complex sentences

with a recursive structure.

This is called the cognitive hierarchy theory,

something I've worked on and a few other people,

and it indicates a kind of hierarchy,

along with some assumptions about how many people stop at different steps

and how the steps of thinking are affected

by lots of interesting variables and variant people,

as we'll see in a minute.

A very different theory, a much more popular one and an older one,

due largely to John Nash of "A Beautiful Mind" fame,

is what's called "equilibrium analysis."

So if you've ever taken a game theory course at any level,

you'll have learned a bit about this.

An equilibrium is a mathematical state

in which everybody has figured out exactly what everyone else will do.

It is a very useful concept,

but behaviorally, it may not exactly explain

what people do the first time they play these types of economic games

or in situations in the outside world.

In this case, the equilibrium makes a very bold prediction,

which is: everyone wants to be below everyone else,

therefore, they'll play zero.

Let's see what happens.

This experiment's been done many, many times.

Some of the earliest ones were done in the '90s

by me and Rosemarie Nagel and others.

This is a beautiful data set of 9,000 people

who wrote in to three newspapers and magazines that had a contest.

The contest said, send in your numbers,

and whoever is close to two-thirds of the average will win a big prize.

As you can see, there's so much data here, you can see the spikes very visibly.

There's a spike at 33 -- those are people doing one step.

There is another spike visible at 22.

Notice, by the way, most people pick numbers right around there;

they don't necessarily pick exactly 33 and 22.

There's something a bit noisy around it.

But you can see those spikes on that end.

There's another group of people

who seem to have a firm grip on equilibrium analysis,

because they're picking zero or one.

But they lose, right?

Because picking a number that low is actually a bad choice

if other people aren't doing equilibrium analysis as well.

So they're smart, but poor.

(Laughter)

Where are these things happening in the brain?

One study by Coricelli and Nagel gives a really sharp, interesting answer.

They had people play this game while they were being scanned in an fMRI,

and two conditions:

in some trials, they're told,

"You're playing another person who's playing right now.

We'll match up your behavior at the end and pay you if you win."

In other trials, they're told, "You're playing a computer,

they're just choosing randomly."

So what you see here is a subtraction of areas

in which there's more brain activity when you're playing people

compared to playing the computer.

And you see activity in some regions we've seen today,

medial prefrontal cortex, dorsomedial, up here,

ventromedial prefrontal cortex, anterior cingulate,

an area that's involved in lots of types of conflict resolution,

like if you're playing "Simon Says,"

and also the right and left temporoparietal junction.

And these are all areas which are fairly reliably known to be

part of what's called a "theory of mind" circuit

or "mentalizing circuit."

That is, it's a circuit that's used to imagine what other people might do.

These were some of the first studies to see this tied in to game theory.

What happens with these one- and two-step types?

So, we classify people by what they picked,

and then we look at the difference between playing humans versus computers,

which brain areas are differentially active.

On the top, you see the one-step players.

There's almost no difference.

The reason is, they're treating other people like a computer,

and the brain is too.

The bottom players, you see all the activity in dorsomedial PFC.

So we know the two-step players are doing something differently.

Now, what can we do with this information?

You might be able to look at brain activity and say,

"This person will be a good poker player," or "This person's socially naive."

We might also be able to study things like development of adolescent brains

once we have an idea of where this circuitry exists.

OK. Get ready.

I'm saving you some brain activity,

because you don't need to use your hair detector cells.

You should use those cells to think carefully about this game.

This is a bargaining game.

Two players who are being scanned using EEG electrodes

are going to bargain over one to six dollars.

If they can do it in 10 seconds, they'll earn that money.

If 10 seconds go by and they haven't made a deal, they get nothing.

That's kind of a mistake together.

The twist is that one player, on the left,

is informed about how much on each trial there is.

They play lots of trials with different amounts each time.

In this case, they know there's four dollars.

The uninformed player doesn't know, but they know the informed player knows.

So the uninformed player's challenge is to say,

"Is this guy being fair,

or are they giving me a very low offer

in order to get me to think there's only one or two dollars available to split?"

in which case they might reject it and not come to a deal.

So there's some tension here between trying to get the most money

but trying to goad the other player into giving you more.

And the way they bargain is to point on a number line

that goes from zero to six dollars.

They're bargaining over how much the uninformed player gets,

and the informed player will get the rest.

So this is like a management-labor negotiation

in which the workers don't know

how much profits the privately held company has,

and they want to maybe hold out for more money,

but the company might want to create the impression

that there's very little to split: "I'm giving the most I can."

First, some behavior: a bunch of the subject pairs play face-to-face.

We have other data where they play across computers.

That's an interesting difference, as you might imagine.

But a bunch of the face-to-face pairs

agree to divide the money evenly every single time.

Boring. It's just not interesting neurally.

It's good for them -- they make a lot of money.

But we're interested in:

Can we say something about when disagreements occur versus don't occur?

So this is the other group of subjects, who often disagree.

They bicker and disagree and end up with less money.

They might be eligible to be on "Real Housewives," the TV show.

(Laughter)

You see on the left,

when the amount to divide is one, two or three dollars,

they disagree about half the time;

when it's four, five, six, they agree quite often.

This turns out to be something that's predicted

by a very complicated type of game theory

you should come to graduate school at CalTech and learn about.

It's a little too complicated to explain right now,

but the theory tells you that this shape should occur.

Your intuition might tell you that, too.

Now I'm going to show you the results from the EEG recording.

Very complicated.

The right brain schematic is the uninformed person,

and the left is the informed.

Remember that we scanned both brains at the same time,

so we can ask about time-synced activity

in similar or different areas simultaneously,

just like if you wanted to study a conversation,

and you were scanning two people talking to each other.

You'd expect common activity in language regions

when they're listening and communicating.

So the arrows connect regions that are active at the same time.

The direction of the arrows

flows from the region that's active first in time,

and the arrowhead goes to the region that's active later.

So in this case, if you look carefully,

most of the arrows flow from right to left.

That is, it looks as if the uninformed brain activity

is happening first,

and then it's followed by activity in the informed brain.

And by the way, these are trials where their deals were made.

This is from the first two seconds.

We haven't finished analyzing this data, so we're still peeking in,

but the hope is that we can say something in the first couple of seconds

about whether they'll make a deal or not,

which could be very useful in thinking about avoiding litigation

and ugly divorces and things like that.

Those are all cases in which a lot of value is lost by delay and strikes.

Here's the case where the disagreements occur.

You can see it looks different than the one before.

There's a lot more arrows.

That means that the brains are synced up more closely

in terms of simultaneous activity,

and the arrows flow clearly from left to right.

That is, the informed brain seems to be deciding,

"We're probably not going to make a deal here."

And then later, there's activity in the uninformed brain.

Next, I'm going to introduce you to some relatives.

They're hairy, smelly, fast and strong.

You might be thinking back to your last Thanksgiving.

(Laughter)

Maybe, if you had a chimpanzee with you.

Charles Darwin and I and you broke off from the family tree from chimpanzees

about five million years ago.

They're still our closest genetic kin.

We share 98.8 percent of the genes.

We share more genes with them than zebras do with horses.

And we're also their closest cousin.

They have more genetic relation to us than to gorillas.

So, how humans and chimpanzees behave differently

might tell us a lot about brain evolution.

This is an amazing memory test

from [Kyoto], Japan, the Primate Research Institute,

where they've done a lot of this research.

This goes back a ways. They're interested in working memory.

The chimp will see, watch carefully,

they'll see 200 milliseconds' exposure -- that's fast, eight movie frames --

of numbers one, two, three, four, five.

Then they disappear and are replaced by squares,

and they have to press the squares

that correspond to the numbers from low to high

to get an apple reward.

Let's see how they can do it.

This is a young chimp.

The young ones are better than the old ones, just like humans.

(Laughter)

And they're highly experienced,

they've done this thousands of times.

Obviously there's a big training effect, as you can imagine.

(Laughter)

You can see they're very blasé and effortless.

Not only can they do it very well, they do it in a sort of lazy way.

(Laughter)

Who thinks you could beat the chimps?

(Laughter)

Wrong. (Laughter)

We can try. We'll try. Maybe we'll try.

OK, so the next part of the study I'm going to go quickly through

is based on an idea of Tetsuro Matsuzawa.

He had a bold idea he called the "cognitive trade-off hypothesis."

We know chimps are faster and stronger; they're also obsessed with status.

His thought was, maybe they've preserved brain activities

and practice them in development

that are really, really important to them to negotiate status and to win,

which is something like strategic thinking during competition.

So we're going to check that out

by having the chimps actually play a game

by touching two touch screens.

The chimps are interacting with each other through the computers.

They'll press left or right.

One chimp is called a matcher; they win if they press left-left,

like a seeker finding someone in hide-and-seek, or right-right.

The mismatcher wants to mismatch;

they want to press the opposite screen of the chimp.

And the rewards are apple cube rewards.

So here's how game theorists look at these data.

This is a graph of the percentage of times

the matcher picked right on the x-axis

and the percentage of times they picked right

by the mismatcher on the y-axis.

So a point here is the behavior by a pair of players,

one trying to match, one trying to mismatch.

The NE square in the middle -- actually, NE, CH and QRE --

those are three different theories of Nash equilibrium and others,

tells you what the theory predicts,

which is that they should match 50-50,

because if you play left too much, for example,

I can exploit that if I'm the mismatcher by then playing right.

And as you can see, the chimps -- each chimp is one triangle --

are circled around, hovering around that prediction.

Now we move the payoffs.

We're going to make the left-left payoff for the matcher a little higher.

Now they get three apple cubes.

Game theoretically, that should make the mismatcher's behavior shift:

the mismatcher will think, "Oh, this guy's going to go for the big reward,

so I'll go to the right, make sure he doesn't get it."

And as you can see, their behavior moves up

in the direction of this change in the Nash equilibrium.

Finally, we changed the payoffs one more time.

Now it's four apple cubes,

and their behavior again moves towards the Nash equilibrium.

It's sprinkled around, but if you average the chimps out,

they're really close, within .01.

They're actually closer than any species we've observed.

What about humans? You think you're smarter than a chimpanzee?

Here's two human groups in green and blue.

They're closer to 50-50; they're not responding to payoffs as closely.

And also if you study their learning in the game,

they aren't as sensitive to previous rewards.

The chimps play better than the humans, in terms of adhering to game theory.

And these are two different groups of humans, from Japan and Africa;

they replicate quite nicely.

None of them are close to where the chimps are.

So, some things we learned:

people seem to do a limited amount of strategic thinking using theory of mind.

We have preliminary evidence from bargaining

that early warning signs in the brain might be used to predict

whether there'll be a bad disagreement that costs money,

and chimps are "better" competitors than humans,

as judged by game theory.

Thank you.

(Applause)