Rational choice theory enjoys unprecedented popularity and influence in the behavioral and social sciences, but it generates intractable problems when applied to socially interactive decisions. In individual decisions, instrumental rationality is defined in terms of expected utility maximization. This becomes problematic in interactive decisions, when individuals have only partial control over the outcomes, because expected utility maximization is undefined in the absence of assumptions about how the other participants will behave. Game theory therefore incorporates not only rationality but also common knowledge assumptions, enabling players to anticipate their co-players' strategies. Under these assumptions, disparate anomalies emerge. Instrumental rationality, conventionally interpreted, fails to explain intuitively obvious features of human interaction, yields predictions starkly at variance with experimental findings, and breaks down completely in certain cases. In particular, focal point selection in pure coordination games is inexplicable, though it is easily achieved in practice; the intuitively compelling payoff-dominance principle lacks rational justification; rationality in social dilemmas is self-defeating; a key solution concept for cooperative coalition games is frequently inapplicable; and rational choice in certain sequential games generates contradictions. In experiments, human players behave more cooperatively and receive higher payoffs than strict rationality would permit. Orthodox conceptions of rationality are evidently internally deficient and inadequate for explaining human interaction. Psychological game theory, based on nonstandard assumptions, is required to solve these problems, and some suggestions along these lines have already been put forward.

Rejecting evolutionary principles is a mistake, because evolutionary processes produced the irrational human minds for which Colman argues. An evolved cultural ability to acquire information socially and infer other's mental states (mind-reading) evokes Stackelberg reasoning. Much of game theory, however, assumes away information transfer and excludes the very solution that natural selection likely created to solve the problem of cooperation.

One reason why humans don't behave according to standard game theoretical rationality is because it's not realistic to assume that everyone else is behaving rationally. An individual is expected to have psychological mechanisms that function to maximize his/her long-term payoffs in a world of potentially “irrational” individuals. Psychological decision theory has to be individualistic because individuals make decisions, not groups.

The advent of functional brain imaging has revolutionized the ability to understand the biological mechanisms underlying decision-making. Although it has been amply demonstrated that assumptions of rationality often break down in experimental games, there has not been an overarching theory of why this happens. I describe recent advances in functional brain imaging and suggest a framework for considering the function of the human reward system as a discrete agent.

Although Colman's criticisms of orthodox game theory are convincing, his assessment of progress toward construction of an alternative is unnecessarily restrictive and pessimistic. He omits an important multidisciplinary literature grounded in human evolutionary biology, in particular the existence and function of social emotions experienced when facing some strategic choices. I end with an alternative suggestion for modifying orthodox game theory.

Many weaknesses of game theory are cured by new models that embody simple cognitive principles, while maintaining the formalism and generality that makes game theory useful. Social preference models can generate team reasoning by combining reciprocation and correlated equilibrium. Models of limited iterated thinking explain data better than equilibrium models do; and they self-repair problems of implausibility and multiplicity of equilibria.

We compare Colman's proposed “psychological game theory” with the existing literature on psychological games (Geanakoplos et al. 1989), in which beliefs and intentions assume a prominent role. We also discuss experimental evidence on intentions, with a particular emphasis on reciprocal behavior, as well as recent efforts to show that such behavior is consistent with social evolution.

Game-theoretic explanations of behavior need supplementation to be descriptive; behavior has multiple causes, only some governed by traditional rationality. An evolutionarily informed theory of action countenances overlapping causal domains: neurobiological, psychological, and rational. Colman's discussion is insufficient because he neither evaluates learning models nor qualifies under what conditions his propositions hold. Still, inability to incorporate emotions in axiomatic models highlights the need for a comprehensive theory of functional rationality.

Game-theoretic rationality is not generally observed in human behavior. One important reason is that subjects do not perceive the tasks in the same way as the experimenters do. Moreover, the rich history of cooperation that participants bring into the laboratory affects the decisions they make.

Colman's critique of classical game theory is correct, but it is well known. Colman's proposed mechanisms are not plausible. Insufficient reason does what “team reasoning” is supposed to handle, and it applies to a broader set of coordination games. There is little evidence ruling out more traditional alternatives to Stackelberg reasoning, and the latter is implausible when applied to coordination games in general.

Beyond what Colman is suggesting, some residual indeterminacy of Nash equilibrium may remain even after individual rationality is amended. Although alternative solution concepts can expand the positive scope (explanatory power) of game theory, they tend to reduce its accuracy of predictions (predictive power). Moreover, the appeal of alternative solutions may be context-specific, as illustrated by the Stackelberg solution.

Where behavior defies economic analysis, one explanation is that individuals consider more than the immediate payoff. We present evidence that noneconomic factors influence behavior. Attractiveness influences offers in the Ultimatum and Dictator Games. Facial resemblance, a cue of relatedness, increases trusting in a two-node trust game. Only by considering the range of possible influences will game-playing behavior be explained.

Game theory poses problems for modeling rational belief, but it does not need a new theory of rationality. Experimental results that suggest otherwise often reveal difficulties in testing game theory, rather than mistakes or paradoxes. Even though the puzzles Colman discusses show no inadequacy in the standard theory of rationality, they show that improved models of belief are needed.

Individualism fixes the unit of rational agency at the individual, creating problems exemplified in Hi-Lo and Prisoner's Dilemma (PD) games. But instrumental evaluation of consequences does not require a fixed individual unit. Units of agency can overlap, and the question of which unit should operate arises. Assuming a fixed individual unit is hard to justify: It is natural, and can be rational, to act as part of a group rather than as an individual. More attention should be paid to how units of agency are formed and selected: Are the local processes local or nonlocal? Do they presuppose the ability to understand other minds?

This comment makes four related points. First, explaining coordination is different from explaining cooperation. Second, solving the coordination problem is more important for the theory of games than solving the cooperation problem. Third, a version of the Principle of Coordination can be rationalized on individualistic grounds. Finally, psychological game theory should consider how players perceive their gaming situation.

Normative analysis in game-theoretic situations requires assumptions regarding players' expectations about their opponents. Although the assumptions entailed by the principle of common knowledge are often violated, available empirical evidence – including focal point selection and violations of backward induction – may still be explained by instrumentally rational agents operating under certain mental models of their opponents.

Colman's reformulation of rational theory is challenged in two ways. Analogy-making is suggested as a possible candidate for an underlying and unifying cognitive mechanism of decision-making, one which can explain some of the paradoxes of rationality. A broader framework is proposed in which rationality is considered as an emerging property of analogy-based behavior.

In social dilemmas, expectations of reciprocity can lead to fully determined cooperation concurrent with the illusion of choice. The choice of the dominant alternative (i.e., defection) may be construed as being free and rational, but only at the cost of being incompatible with a behavioral science claiming to be deterministic.

The importance of understanding human cooperation urges further integration between the relevant disciplines. I suggest ideas for bottom-up and top-down integration. Evolutionary psychology can investigate the kinds of reasoning it was adaptive for humans to employ. Disciplines can learn from each other's approaches to similar problems, and I give an example for economics and evolutionary biology.

Colman proposes that the domain of interpersonal choice requires an alternative and nonindividualistic conception of rationality. However, the anomalies he catalogues can be accounted for with less radical departures from orthodox rational choice theory. In particular, we emphasize the need for descriptive and prescriptive rationality to incorporate recursive interplay between one's own choices and one's expectation regarding others' choices.