A social dilemma is a game which at first glance has only inefficient solutions. If efficient solutions are to be achieved, some kind of cooperation among the players is required. This book asks two basic questions, closely intertwined with each other: 1. How is cooperation possible among rational players in such a social dilemma? Which changes in the social context of a social dilemma situation are necessary in order for players to rationally choose the cooperative option? 2. How do real players actually behave in social dilemma situations? Do they behave "rationally" at all? Or, conversely, what kind of reasoning, attitudes, emotions, etc. shape the behavior of real players in social dilemmas? What kind of interventions, what kind of internal mechanisms within a real group may change players' willingness to cooperate? These two general questions mark the broad spectrum of the problem which has been, over the last three decades, investigated in various disciplines, and which has brought many new ideas and new observations into the study of the old question of social order in a world of born egoists. Accordingly, this volume contains contributions by biologists, sociologists, political scientists, economists, mathematicians, psychologists, and philosophers.

Strategic interaction occurs whenever it depends on others what one finally obtains: on markets, in firms, in politics etc. Game theorists analyse such interaction normatively, using numerous different methods. The rationalistic approach assumes perfect rationality whereas behavioral theories take into account cognitive limitations of human decision makers. In the animal kingdom one usually refers to evolutionary forces when explaining social interaction. The volume contains innovative contributions, surveys of previous work and two interviews which shed new light on these important topics of the research agenda. The contributions come from highly regarded researchers from all over the world who like to express in this way their intellectual inspiration by the Nobel-laureate Reinhard Selten.

"Modeling Bounded Rational Behavior in Experimental Games and Markets" was the general theme of the Fourth Conference on Experimental Economics, held from September 21 to 25, 1986 at the Zentrum fUr Interdisziplinare Forschung in Bielefeld, Germany. This volume contains the papers presented at this conference in a revised and condensed form. The discussed topics concern experimental economics in general, unilateral and bilateral decisions, auctions and markets, and the problem of coalition formation. A selective bibliograpghy of the participants' work in the field of experimental economics is added. On behalf of the Conference Board and of the Gesellschaft fur Experimentelle Wirtschaftsforschung we express thanks to the Zentrum fur Interdiszipl inare Forschung for organizing and financing the conference. We owe thanks also to an anonymous donor for additional financial support. We thank Ulrich Vossebein and Sigrid . Manthey for their help in preparing the conference and this publication. Reinhard Tietz Wulf Albers Reinhard Selten CONTENTS PREFACE III CONTENTS v I. EXPERIMENTAL ECONOMICS Reinhard Tietz 3 Experimental Economics: Ways to Model Bounded Rational Bargaining Behavior - Introductory Remarks to the Fourth Conference on Experimental Economics - Daniel Kahneman 11 Experimental Economics: A Psychological Perspective II. UNILATERAL DECISIONS Monika Isis Ksiensik and Dirk Wendt 21 Normative and Individual Strategies in Social Dilemmata Friedel Bolle 37 Learning to Make Good Predictions in Time Series John D. Hey and Valentino Dardanoni 51 A Preliminary Analysis of a Large-Scale Experimental Investigation into Consumption under Uncertainty Oswald Huber 66 Mental Representation in Multistage Decision Making III.