The Limits of Social Cognition: Production Functions and Reasoning in Strategic Interactions

Classical game theory assumes that players reason their way to Nash Equilibrium. This assumption has been challenged by behavioral data showing that humans often employ other strategies. Here, we seek to explain this deviation from classical theory by introducing a new psychological measure of game-complexity, which decomposes each interaction into social and non-social arithmetic cognitive demands. Inspired by the economic concept of production functions, we develop a psychophysical approach that models strategic sophistication as the product of subjects’ capabilities on each of these dimensions. In two independent studies, we show that social and arithmetic demands are contextual factors for sophistication that behave lawfully with psychophysical regularity, and that subjects trade-off these capabilities as game-complexity varies. Our results are a hybrid, applying concepts from individual decision-making and psychophysics into strategic social reasoning. Our findings provide a framework for future neuroimaging and computational psychiatric studies.