The Economy of Decision Effort
Decision effort is a scarce commodity, being both time consuming and mentally taxing. Reasoning is more costly than Imagination, which, in turn is more costly than Routine. The highest level activated is not always the most accurate since the individual may be able to reach a good decision on the routine level, but makes serious computational mistakes on higher levels, especially Reasoning.
Selten finally argues that strategic decisions, like those made by the monopolist in the chainstore paradox, are generally made on the level of Imagination, where deterrence is a reality, due to the complexity of Reasoning, and the great inferiority of Routine (it does not allow the individual to see herself in the other player's position). Since Imagination cannot be used to visualize more than a few stages of an extensive form game (like the Chain-store game) individuals break down games into "the beginning" and "towards the end". Here, deterrence is a reality, since it is reasonable "in the beginning", yet is not convincing "towards the end".
Read more about this topic: Chainstore Paradox
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