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 approaches, which recognize that individuals face cognitive constraints, limiting their ability to achieve equilibria. Here, we introduce a new measure of a 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 sophistication as the product of subjects’ capacities 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 capacities as game-complexity varies. Our results are a hybrid, applying concepts from psychophysics and individual decision-making into strategic social reasoning. These findings present a new approach to behavioral game theory, and provide a framework for future neuroimaging and computational psychiatric studies.