Honorary doctor on the importance of emotions: "Economics is a game"

– I was fascinated from the very beginning by the subject. I've always been curious about how people interact and influence each other, from golf and tennis to board games like chess and poker. This interaction is also present in economics. Trying to understand how people make decisions and influence each other is incredibly interesting.

Martin Dufwenberg completed his doctoral studies in 1995 at Uppsala University with a thesis in game theory before obtaining his professorship at Stockholm University. In 2003, he moved to the United States, where he is still active at the Eller College of Management at the University of Arizona. For the past 20 years, he has been annually invited as a guest professor at the School of Business, Economics and Law, an effort that led to the school awarding Martin Dufwenberg an honorary doctorate, citing his "significant contributions to research, doctoral student supervision, as well as seminar and conference activities”.

– My early career was shaped in Europe, and the University of Arizona has an exceptionally strong department in my research areas of behavioral and experimental economics, as well as game theory. However, the School of Business has become my Swedish academic home, and I am incredibly proud and grateful to have been awarded an honorary doctorate here.

Expectations and Beliefs Influence
Game theory, one of the research fields in which Martin Dufwenberg operates, can be explained as a mathematical framework that analyzes how people make decisions in different situations – a "game" – and how we act to achieve the best possible outcome.

Throughout his career, Martin Dufwenberg has explored an area of game theory called psychological game theory, where expectations and beliefs play a significant role in influencing decision-makers' motivation through emotions. Using both theory and experiments as methods, he has sought to understand how human psychology affects decision-making.

– In conventional game theory, it is often assumed that players' preferences can be described independently of their expectations. In psychological game theory, the analysis is enriched to explore how preferences can be influenced by belief-dependent emotions such as anger, frustration, disappointment, guilt, and regret. The framework is also relevant if one wants to study reciprocity, which means that decision-makers are motivated to reciprocate.

This research is relevant to several areas; for instance, Martin Dufwenberg has studied wage setting, social norms, marriage, negotiations, informal beliefs, promises and threats, contracts, the production of public goods, and tax morale.

– I have worked with Professor Katarina Nordblom here at the School of Business, Economics and Law on a project about how feelings of guilt can affect tax morale. In our model, it turns out that feelings of guilt do not affect how much actual cheating occurs but rather the number of inspections carried out by the state. Another interesting aspect is that our analysis can explain why it matters whether tax declarations are made public, as is the case in Sweden, or not, as is the case in the USA and many other countries.

– Other examples of my research concern how emotions can play a significant role in understanding how communication can affect economic outcomes. Connections can be drawn, for instance, between feelings of guilt and promises, and between anger and threats.

Mathematical Formula for Kindness
Martin Dufwenberg has also developed a mathematical formula for kindness. Kindness is an important aspect of the so-called reciprocity theory, an economic theory based on the idea of reciprocity. In this case, the principle means that individuals are assumed to be kind if others are kind, and vice versa.

– A key aspect in this context is that it is not enough to describe what people do; one must also describe intentions. Consider, for example, that I spill coffee on you. Am I kind? You have to reflect on my intentions to answer that question to react appropriately. And the answer is likely different depending on whether I did it on purpose or by accident. Methods from psychological game theory are useful for formulating this clearly, simply put, formula.

Game theory was founded in the 1940s by mathematician John von Neumann and economist Oskar Morgenstern, and was further developed by John Nash in the 1950s and many others afterward. The pioneering work in psychological game theory is an article by John Geanakoplos, David Pearce, and Ennio Stachetti dating back to 1989. After that, it is Martin Dufwenberg, often in collaboration with Pierpaolo Battigalli, who has made the most contributions. And the future looks bright.

– Psychological game theory is a fascinating subject, and incorporating interesting ideas from psychology into the analysis is very exciting. I may have given the impression that such a focus is common, but that's not quite the case. I am one of relatively few researchers conducting work in that direction, says Martin Dufwenberg.

Text: Jessica Oscarsson