Modeling Bounded Rationality
Ariel Rubinstein
Language: English
Pages: 208
ISBN: 0262681005
Format: PDF / Kindle (mobi) / ePub
The notion of bounded rationality was initiated in the 1950s by Herbert Simon; only recently has it influenced mainstream economics. In this book, Ariel Rubinstein defines models of bounded rationality as those in which elements of the process of choice are explicitly embedded. The book focuses on the challenges of modeling bounded rationality, rather than on substantial economic implications.
In the first part of the book, the author considers the modeling of choice. After discussing some psychological findings, he proceeds to the modeling of procedural rationality, knowledge, memory, the choice of what to know, and group decisions.In the second part, he discusses the fundamental difficulties of modeling bounded rationality in games. He begins with the modeling of a game with procedural rational players and then surveys repeated games with complexity considerations. He ends with a discussion of computability constraints in games. The final chapter includes a critique by Herbert Simon of the author's methodology and the author's response.
The Zeuthen Lecture Book series is sponsored by the Institute of Economics at the University of Copenhagen.
1/λ < u(x2)/u(x1) < λ and p1 ∼p p2 iff 1/λ < g(p2)/g(p1) < λ. Conclude that the vNM expected utility theory together with (P-∗) requires that ∼p be a λ-ratio similarity relation. (Analogously, the dual expected utility theory, which has a utility representation with the functional form g(p)x, requires that ∼x be a λ-ratio similarity relation.) 7. Reading Read Azipurua, Ichiishi, Nieto, and Uriarte (1993), who extend the results of this chapter to the case where the determination of whether x1 is
model bounded rationality have yet to ªnd the right track. It is difªcult to pinpoint any economic work not based on fully rational microeconomic behavior that yields results as rich, deep, and interesting as those achieved by standard models assuming full rationality. I consider these to be the three fundamental obstacles we have to overcome: The construction of pertinent new theories of choice. We have clear, casual, and experimental observations that indicate • 4 Introduction systematic
announced and the posted price must be determined according to the random device that the announced strategy has assigned to the realized state of nature. 3. This construction avoids the need to discuss “out-of-equilibrium” prices. Because the price policy is a commitment, only prices in the support of the equilibrium price policy can be materialized. The seller’s announcement forces all fully rational consumers to Choosing What to Know 97 hold the same beliefs abut the state of nature after
the second model, Radner’s model of organization, the group has to pursue an action based on 108 Chapter 6 information it gathers from many sources. In the third, that of social choice, a collective decision has to be made on the basis of information obtained about the members’ preferences. Some of the questions posed here are similar to those asked regarding individual decision makers. When discussing the team model, we will ask, “Does the decision process lead to a rational decision?” and
let Vj(q) = max s Uj(M ∗i (q), sj), where M ∗i (q) is the machine that differs from M ∗i j only in the initial state, q. For each q ∈ Qi, let Aj(q) be the set of solutions to the problem: max a ∈A uj(fi(q), aj) + δVj(τi(q, aj)). j j Player j’s strategy is a best response, in the repeated game, to the strategy which corresponds to Mi* if and only if the action he takes when player i’s machine is in state q is a member of Aj(q). Consider now the problem max M Uj(M ∗i , Mj). This problem differs j