Information theory and behavior

• Published in: The European physical journal. ST, Special topics Vol. 229; no. 9; pp. 1591 - 1602
• Main Author: Foley, Duncan K.
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01.07.2020; Springer Nature B.V
• Subjects: Atomic; Classical and Continuum Physics; Condensed Matter Physics; Constraints; Entropy; Frequency distribution; Game theory; Information theory; Lagrange multiplier; Materials Science; Maximization; Maximum Entropy Economics: Foundations and Applications; Measurement Science and Instrumentation; Molecular; Optical and Plasma Physics; Optimization; Physics; Physics and Astronomy; Prisoners; Regular Article; Social factors
• ISSN: 1951-6355; 1951-6401
• DOI: 10.1140/epjst/e2020-900133-x

The quantal response behavior widely observed in experiments and observations of human and animal behavior can be derived as expected payoff maximization subject to a constraint on the entropy of the subject’s behavior mixed strategy. The Lagrange multiplier corresponding to the entropy constraint is an agent’s “behavior temperatureˮ. Entropy-constrained behavior approximates payoff-maximizing behavior, but in many contexts exhibits qualitatively different outcomes. The “endowment effectˮ and other instances of “loss-aversionˮ, for example, can be seen as a consequence of entropy-constrained behavior. Identical entropy-constrained agents with the same value for a good or asset will exhibit spontaneous “noise tradingˮ. An entropy-constrained agent with a lower behavior temperature will systematically take economic surplus away from an agent with the same valuation of a good but a higher behavior temperature in bilateral transactions. The equilibrium of a standard supply-demand models with entropy-constrained agents is a non-degenerate frequency distribution of transaction prices rather than a single equilibrium price. Changes in behavior temperature can transform social interaction games from prisoners’ dilemmas to assurance games. Entropy-constrained quantal responses allow quantitative inferences about payoff changes and distribution stronger than qualitative Pareto comparisons.