In Search of Felis Catus Economicus

by Bernard Sia

Contents
Contents ........................................................................................................................................................ 1 Executive Summary....................................................................................................................................... 2 Introduction .................................................................................................................................................. 2 Literature Review .......................................................................................................................................... 2 Modelling the Cats ........................................................................................................................................ 5 Analyzing the Model ................................................................................................................................. 7 Analysis of Results..................................................................................................................................... 8 Limitations of Study ...................................................................................................................................... 9 Conclusion ..................................................................................................................................................... 9 References & Bibliography.......................................................................................................................... 10 Appendices.................................................................................................................................................. 12 Summarized Results ................................................................................................................................ 12 Raw Data Collected ................................................................................................................................. 12

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Executive Summary
Rational Choice being the cornerstone of economics is heavily challenged as recent studies have shown various scenarios where people behave irrationally. In comparing people against animals we can agree that animals are far less complex and the use of cats is an attempt to simulate a simplified scenario of complete and perfect information with almost no social repercussions from a highly motivated, individualistic living creature. We attempt to validate that when given all the required informational parameters the decision maker should behave rationally and be predictable. Thus Game Theory can be used as a predictive tool for decision making and analysis in strategic multi party scenarios where the outcomes are jointly determined by the participants; assuming that we are able to attain this controlled environment. Four domestic cats feeding behaviours are modelled and juxtaposed against actual results, in search of Felis Catus Economicus (The Economic Domestic Cat).

Introduction
Homo Economicus or the Economic Man began with John Stuart Mill (1848), while being credited for the phrase, never actually used it in his work. Instead, it was made infamous by Ingram (1888) when he derided Mills abstraction of individual economic motivations through an economic man caricature, described as a man obsessed with money with four rudimentary interests; accumulation, leisure, luxury and procreation (Persky, 1995). Since then the Economic Man has become the basis of traditional economics and is said to be rational in defining his actions (Simon, 1955).

Literature Review
However, various authors across the decades of economic research proceeded to expound that the theory is incomplete where pure rationality cannot be applied in areas of innovation (Schumpeter, 1947) and decision making is heavily influenced by various factors (Simon, 1955), (Tversky & Kahneman, 1974)1. Cross cultural studies have also shown varying degrees of divergences from expected rational results (Henrich et. al., 2001), prejudicial behavior between cultures (Hoffmann et. al., 2007) and how irrationallity are to a certain extent, predictable (Ariely, 2010).
1

Almost all of the authors became figureheads of their respective fields; for example, Schumpeter on Innovation and Entrepreneurship, Simon on Bounded Rationality, Tversky & Kahnemann on their studies of heuristic decision making.

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The understanding of decision making between parties in conflict; where their actions and reactions jointly determine the outcome is the study of Game Theory (Bicchieri, 2004). The interactions between parties in conflict can happen sequentially; for example, in chess or simultaneously as in a Rock-PapersScissors game, where both players are uncertain of the moves until it happens (Dixit & Nalebuff, 2008). In game theory this uncertainty it is equated to Nature, an element of risk beyond the players influence. For example; even a footballer against an unguarded goal is pitted with factors such as a freak gust that can reduce the certainty of scoring. In game theory we also talk about the difference between complete and incomplete information where complete information is defined as all players knowing the rules of the game and both players know the relative value of payouts of outcomes of their actions (Gibbons, 1997). For example; losing a pawn is preferable to losing a rook in chess, hence it is certain that the player would not want to lose the rook2. A game of chess also provides the players perfect information because they are privy to all prior moves before executing their respective play sequentially, as compared to the Rock-Papers-Scissors example earlier. However, we need to define preferences further in terms of completeness, transitivity and continuity; originally described mathematically by Von Neumann and Morgenstern (1944), who were also credited for the science behind modern game theory. Firstly; in rook versus pawn, we know that there are only two choices to pick from and completeness means that the player either prefers pawn over rook3 or rook over pawn, or is indifferent between the two. With transitivity, we are able to extend the relationship of values, for example; a Queen is more valuable than a Rook, and hence the Queen is also better than the Pawn. Finally; continuity, we can simplify by saying that even if the piece of Rook is in tatters, it would not impact the value of the rook4. Hence, players having sufficient information to form preferences that contain all these three elements are able to assign payoff value or utility to rank each
2

Rasmusen (2007, p. 51) highlighted that this old definition of complete information is not meaningful because until 1967; game theorists spoke as if games of incomplete transformation cannot be analyzed. This makes sense, because the opponent would seem erratic in sacrificing a rook for a pawn. Then Harsanyi (1967) showed that what is required was to transform the potential opponents actions, based on what you think he would do, by assigning the probability of him either sacrificing the rook or the pawn. This added randomness in payoffs transformed incomplete games into complete games but imperfect information; and Harsanyi was awarded the Nobel Prize in Economics for games of incomplete information in 1994 (The Nobel Foundation, 1994).
3

A chess player will prefer pawn over rook should the ensuing exchange exposes a position that will mate the opponent or a substantially better strategic position.
4

Even if the Pawn chess piece is shaped bigger than the rook, the result should not matter either.

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of the choices; and the rational player will always pick choices that maximize his utility (Bicchieri, 2004, p. 197). Unfortunately; rarely are we provided with complete let alone perfect information and although we can guess the relative importance of another persons choices and react to that, it is almost never a certainty and factors such as his own lack of information or misinformation, prejudices and social forces (Anderson, 2000) can influence or even limit his choices. Simon (1955, 1956) was the earliest to popularize the limitations of human mind in decision making claiming that people by nature are not able to calculate expected payoffs and Simons research was soon called Bounded Rationality. Deciding based on expected utility and pure rationality have also been critique by Tversky & Kahneman (1974) and Sen (1977) with various articles expanding on those earlier works to explain pitfalls in decision making and irrationality (Hammond et. al., 1998), (Elster, 2007, pp. 214-231) with Game Theory being scrutinized through a series of experiments by Binmore (2007). What is interesting to note from these authors is the concept of heuristics, simplified as rules of thumb; where the brain takes short cuts to come to a decision. Although game theory is useful, the world is far more complex than a game of chess. We are hardly ever provided with complete let alone perfect information; compounded also by the constraints of time and the limitations of our hormone wracked brain bombarded by the constant pressures of societal norms to conform. However, we may yet say that because humanity still exists despite all our limitations, perhaps the choices that we make, as irrational as they are, are evolutionarily stable, coined by John Maynard Smith (1982)5 in his study of Evolutionary Game Theory or so we hope.

Despite all our actions and inactions, it has not given rise to a mutant race of humans that is capable of wiping out the rest of humanity. Or perhaps that mutation has occurred in a localized scale through the evidence of unexplained civilizations disappearing and the start of another; similarly with the death of a species and the propagation of another. Perhaps also, the concept of monarchy, kings and dictatorships are manifestations of this aberration, as these individuals have historically initiated wide spread death through wars and pogroms.

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Certainty

Uncertainty

Figure 1 Our interactions with the world is weighed by uncertainty and thus areas of study on the right of the scale are a logical extension to Game Theory.

Modelling the Cats

The test subjects are four domestic cats (Felis Catus) below approximately nine months of age.

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Figure 2 - Test Subject 1, Proton

Figure 3 - Test Subject 2, Porche

Figure 4 - Test Subject 3, Beemer

Figure 5 - Test Subject 4, Merce

In every session only one cat is allowed to feed followed by three cats after a period of sixty seconds. The delay is intended to avoid satiation and to encourage motivation. Although there are four cats, the model is simplified as a two player game where the first cat (Cat 1) has the choice of either allowing or disallowing the other cats (Cat 2) to share its meal. Secondly, each of the cats had the opportunity to play Cat 1 and the experiment repeated ten times for each cat. This game is simultaneous, complete information and repeated for the following assumptions:a) Simultaneous because Cat 2 is assumed to not know Cat 1s intensions until it attempts to feed. b) Complete because the initial cat has 2 actions, to allow sharing or initiate aggressive behaviour. Similarly, Cat 2 has the option to either be aggressive or otherwise. c) Repeated, because the four cats are rotated as player one. As Cat 2 it can approach Cat 1 and retreat if threatened, represented as Passive Salami or to Aggressive Salami where should Cat 1 shares, Cat 2 manifests a threatening growl to drive Cat 1 away. The assumed explanations of utility payoffs for the cats actions are described below:Test Cat 1 (Payoff) Subjects Actions Share (2) Share (1) Dont Share(4) Dont Share (1) Cat 2 (Payoff) Passive Salami (2) Aggressive Salami (3) Passive Salami (0) Aggressive Salami (0) Payout Rational Both cats will have half of the feeding. Cat 1 would have some morsels for 60 seconds but releases the remainder to the aggressive Cat. Cat 2 retreats and Cat 1 has all the food. Cat 1 would have some morsels for 60 seconds An escalated fight ensues with no benefit for Cat 2.

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Table 1: Payoffs are arranged 0(lowest) to 4(better) with the rationale explained.

Analyzing the Model

The normal form of the game is represented in Table 2 and Cat 1s best response when passively approached is not to share. When Cat 2 aggressively salamis, Cat 1 can leave the bowl or escalate the aggression into a fight. Analyzing Cat 1s choices in term of payout dominance, we see not sharing weakly dominating sharing and for Cat 2, aggressive salami weakly dominating passive salami. Meaning, regardless of whether Cat 1 is willing to share or not, being aggressive is slightly better for Cat 2.

Cat 2 Passive Salami Share Cat 1 Do Not Share 2,2 4,0 Aggressive Salami 1,3 1,0

Table 2 Pure Nash Equilibrium circled with [1,0] being Pareto inferior to [4,0] [1,3] and [2,2]

By using cell by cell analysis we ascertained three Pure Nash Equilibriums. However [1,0] is Pareto inferior to the equilibriums and remaining [2,2]. This means that Cat 1 should prefer not sharing, hoping that Cat 2 will not escalate it into a fight; while Cat 2 hopes that Cat 1 will also not fight when it aggressively approaches. The situation similar to a Chicken Game where both parties should exhibit aggressive posturing hoping that the other will relent however the availability of cooperative behaviour in [2,2] makes the model resemble a Prisoners Dilemma, albeit a weak one. The chart below illustrates the optimal strategy from both these cats as explained; hence no mixed strategy6 analysis is required.

The author finds the concept of mixed strategy counterintuitive and will attempt to explain it as follows. When there are several preferred outcomes for your opponent i.e. more than one equilibrium; the best way to make your opponent NOT pick these outcomes is to make him indifferent (Garrett & Moore, 2008) to all of his actions. This is done to meet Nashs definition of an equilibrium; a state where both parties have no regrets (nothing to lose and non better off) from the outcome (Dixit & Skeath, 2004, p. 87). This happens when one is indifferent to all outcomes because literally, being indifferent can be translated as having no regrets; and because your opponent has no regrets he will randomize his movements, and by doing so, you would have no regrets as well. The counterintuitive part is the dichotomy of achieving equilibrium through a state of controlled chaos. In this sense, each player is attempting to make the other player randomize his options assuming that the opponent is rational and would want to choose a randomization that provides the best expected value regardless of outcome.

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Cat 1

Cat 2

Cat 2

Cat 1

Table 3 - Cat 1's point of view depending on Cat 2s actions (Not Sharing > Sharing)

Table 4 - Cat 2's point of view depending on Cat 1s actions (Aggressive > Passive)

The challenge then is for the 2 cats to strategize and coordinate in such a way that they both end up better.

Analysis of Results
With reference to data collected in the Appendices, at an aggregated level we observe the cats never escalating the aggressive posturing into a fight (Table 5) and the outcome do concur with the Pareto Inferior nature of that result; interestingly, sharing is also more prominent at 47.37%.
Cat 2 Actions Share Cat 1 Do Not Share 21.05% 0.00% Passive Salami 47.37% Aggressive Salami 31.58%

Table 5 - Actual aggregated distribution of outcomes (based on data in the Appendix, Table 7)

We also observed Proton at 57.14%7 aggressive salami attempts as Cat 2 and this aggression reflected by Cat 2 avoiding Proton as Cat 1 90% of the time. The assumption is that the correlation between aggression and avoidance should be exhibited by all the cats being Cat 1 but unfortunately, it did not. When Porshe was Cat 1, although it was only aggressive 20% of its ten attempts as Cat 2, the other cats still avoided it as Cat 1 70% of the time. The correlation between avoidance and salami, regardless of whether passive or aggressive is higher and a better indicator of outcome, with cats that exhibited low salami actions being interacted more by the other cats. For example; Beemer and Merce only attempted salami once each but are almost always approached by the other cats at 70% and 80% of their tries as Cat 1 respectively. Thus we see two sets
7

The findings hence forth are based on Table 6 and 8 of the Appendices.

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of behaviour; Proton and Porche fitting the model explained versus Beemer and Merce choosing a rather sedate feeding alternative. Perhaps by studying Bounded Rationality we may explore what level of payouts and information are influencing the two different behaviours. To conclude, all four cats did not present a consistent outcome of Not Sharing as Cat 1 and hence the modelling is not prescriptive. What we can see however, is the less aggressive cat sharing more or overpowered into leaving the feeding bowl. Just like a chicken game, the smaller car would naturally swerve against say a lorry; so perhaps we can deduce that an economic cat should acquiesce to the more aggressive one thus avoiding a potentially harmful fight. The question that is outside the scope of the study is, which among these behaviour is the more successful cat in the long term?

Limitations of Study
The author is limited by report word count and feline behaviours are deduced purely from a game theory standpoint without consideration for feline biology and psychology. The four cats are siblings and would have worked out who is more aggressively dominant and behaved accordingly from past experience. The author is also a distraction to the cats exhibited by begging behaviour in Table 9.

Conclusion
Although the author wishes to conclude definitively that Felis Catus Economicus exists, the results are inconclusive but manage to describe behaviours that are not rationally mechanistic (Clayton et. al., 2003, p. 198) thus confirming that there are always more factors requiring consideration, leading us to the importance of studying decision making, especially for businesses to areas beyond Game Theory. To end, although Game Theory is prescriptive in simple zero sum games the author is not even able to prophesize the interactions of domestic cats. Likewise, with hidden human intensions, we can safely say that all cats are grey in the dark8.

Originally attributed to a 16 century quotation with sexual connotations, the author is using the definition from The Oxford Dictionary of English Idioms (Ayto, 2009) that the qualities which distinguishes people from one another are obscured in some circumstances.

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References & Bibliography

Anderson, E. (2000). Beyond Homo Economicus: New Developments in Theories of Social Norms. Philosophy and Public Affairs , 29 (2), pp. 170-200. Ariely, D. (2010). Predictably Irrational:The Hidden Forces That Shape Our Decisions. HarperCollins. Ayto, J. (Ed.). (2009). From the Horses Mouth - The Oxford Dictionary of Idioms (3rd Edition ed.). New York: Oxford University Press. Bicchieri, C. (2004). Rationality and Game Theory. In A. R. Mele, & P. Rawling (Eds.), The Oxford Handbook of Rationality (pp. pp. 182-205). New York: Oxford University Press. Clayton, N., Emory, N., & Dickinson, A. (2003). The rationality of animal memory: the cognition of caching. In S. Hurley (Ed.), Animal Rationality. Oxford University Press. Dixit, A. K., & Nalebuff, B. J. (2008). The Art of Strategy. New York: W. W. Norton & Co. Dixit, A., & Skeath, S. (2004). Games of Strategy (2nd Edition ed.). New York: W.W. Norton & Co. Elster, J. (2007). Explaining Social Behavior. New York: Cambridge University Press. Garrett, K., & Moore, E. (2008). Teaching Mixed Strategy Equilibriums to Undergraduates. International Review of Economics Education , 7 (2), pp. 79-87. Gibbons, R. (1997). An Introduction to Applicable Game Theory. Journal of Economic Perspectives , 11 (1), pp. 127-149. Hammond, J. S., Keeney, R. L., & Raiffa, H. (1998, September-October). The Hidden Traps in Decision Making. Harvard Business Review , 47-58. Harsanyi, J. C. (1967). Games with Incomplete Information Played by Bayesian Players. Management Science , 14 (3), pp. 159-182. Hoffman, R. (2010, June 18). Lecture Materials. Retrieved June 30, 2010, from Games and Strategy for Business: http://www.nottingham.ac.uk/~lizrh2/gsb/materials/9alternative.key.pdf Hoffmann, R., Chuah, S.-H., Jones, M., & Williams, G. (2007). Do cultures clash? Evidence from crossnational ultimatum game experiments. Journal of Economic Behavior & Organization , 65, pp. 3548. JOSEPH HENRICH, B., BOWLES, S., CAMERER, C., & FEHR, E. (2001). In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies. American Economic Review. , 91 (2), pp. 73-78. Ken, B. (2007). Does Game Theory Work. Cambridge: MIT Press.

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Persky, J. (1995). The Ethology of Homo Economicus. Journal of Economic Perspectives , 9 (2), pp. 221231. Rasmusen, E. (2007). Games and Information - An Introduction to Game Theory (4th Edition ed.). Oxford, UK: Blackwell Publishing. Schumpeter, J. A. (1947). The Creative Response in Economic History. The Journal of Economic History , 7 (2), pp. 149-159. Sen, A. K. (1977). A Critique of the Behavioral Foundations of Economic Theory. Philosophy and Public Affairs , 6 (4), pp. 317-344. Simon, H. A. (1955). A Behavioral Model of Rational Choice. The Quarterly Journal of Economics , 69 (1), pp. 99-118. Simon, H. A. (1956). Rational choice and the structure of the environment. Psychological Review , 63 (2), pp. 129-138. Smith, J. M. (1982). Evolution and the Theory of Games. Cambridge: Cambridge University Press. The Nobel Foundation. (1994). John C. Harsanyi - Autobiography. Retrieved June 30, 2010, from Nobelprize.org: http://nobelprize.org/nobel_prizes/economics/laureates/1994/harsanyi-autobio.html Tversky, A., & Kahneman, D. (1974). Judgment under Uncertainty: Heuristics and Biases. Science , 185 (4157), pp. 1124-1131.

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Appendices
Summarized Results
As Cat 2 Proton AggresPassive sive Salami Salami Porche AggresPassive sive Salami Salami Beemer AggresPassive sive Salami Salami Merce AggresPassive sive Salami Salami

Actions Share Do Not Share Share Do Not Share Share Do Not Share Share Do Not Share Total

Total 0

Proton

1 0

As Cat 1

Porshe

2 3 2 2

3 7 0

Beemer

8 0

Merce

Table 6 - Table of interactions between the cats

Cat 2 Actions Cat 1 Share Do Not Share Passive Salami 9 4 Aggressive Salami 6 0

Table 7 - Aggregated Cat 1 and Cat 2 Interactions

Proton 1. 2. 3. 4. 5. As Cat 1 (Unknown-not interacted with at all out of all the attempts) As Cat 1 (Sharing) As Cat 1 (Do Not Share) As Cat 2 (Aggressive Salami) As Cat 2 (Passive Salami) 90.00% 0.00% 100.00% 57.14% 42.86%

Porshe 70.00% 0.00% 100.00% 20.00% 80.00%

Beemer 30.00% 100.00% 0.00% 0.00% 100.00%

Merce 20.00% 100.00% 0.00% 0.00% 100.00%

Table 8 - Percentage of actions taken by each Cat playing Cat 1 and 2 (based on data in the Appendix), the percentages are calculated based on the number of interaction, row 2 to 5. For example, for

Raw Data Collected

We note that situations where all cats are indifferent or do not attempt to salami will be assumed as none strategic, and thus not taken into the overall analysis. In total only 19 interactions occurred between the cats out of the 40 attempts.

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Proton Indifferent Passive Salami Passive Salami Aggressive Salami Aggressive Salami Aggressive Salami Aggressive Salami Indifferent Indifferent Indifferent Indifferent Indifferent Did Not Share Indifferent Indifferent Indifferent Indifferent Passive Salami Indifferent Indifferent Indifferent Unknown Indifferent Indifferent Unknown Indifferent Unknown Indifferent Indifferent Unknown Indifferent Indifferent Unknown Unknown Unknown Unknown Indifferent Indifferent Indifferent Unknown

Porshe Begs Indifferent Did Not Share Indifferent Indifferent Indifferent Indifferent Aggressive Salami Aggressive Salami Did Not Share Passive Salami Passive Salami Passive Salami Passive Salami Passive Salami Passive Salami Passive Salami Did Not Share Passive Salami Unknown Unknown Begs Unknown Indifferent Begs Unknown Indifferent Indifferent Unknown Indifferent Begs Unknown Indifferent Indifferent Indifferent Indifferent Unknown Indifferent Indifferent Indifferent

Beemer Passive Salami Indifferent Indifferent Shared Shared Indifferent Shared Shared Shared Indifferent Shared Shared Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Unknown Begs Indifferent Indifferent Indifferent Indifferent Indifferent Unknown Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Indifferent Unknown Indifferent

Merce Shared Shared Begs Begs Indifferent Shared Indifferent Indifferent Indifferent Passive Salami Begs Indifferent Indifferent Shared Shared Shared Shared Indifferent Shared Indifferent Indifferent Begs Indifferent Indifferent Indifferent Indifferent Indifferent Unknown Indifferent Begs Begs Indifferent Indifferent Indifferent Begs Indifferent Begs Unknown Indifferent Indifferent

Game Played (Y/N) Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N N N N N N N N N N N N N N N N N N N N N

Table 9 - Raw Data Collected (Begs denote the cat focusing on the author instead of interacting with the feeding cat)

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