Use this identifier to quote or link this document: http://hdl.handle.net/2072/260959

Bounded Rationality and Correlated Equilibria
Germano, Fabrizio; Zuazo-Garin, Peio
Universitat Rovira i Virgili. Departament d'Economia; Universitat Rovira i Virgili. Centre de Recerca en Economia Industrial i Economia Pública
We study an interactive framework that explicitly allows for nonrational behavior. We do not place any restrictions on how players' behavior deviates from rationality. Instead we assume that there exists a probability p such that all players play rationally with at least probability p, and all players believe, with at least probability p, that their opponents play rationally. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary probability p. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to derive a measure p that bounds from below the probability with which any given player chooses actions consistent with payoff maximization and common knowledge of payoff maximization. Keywords: strategic interaction, correlated equilibrium, robustness to bounded rationality, approximate knowledge, incomplete information, measure of rationality, experiments. JEL Classification: C72, D82, D83.
2015
33 - Economia
Jocs no-cooperatius (Matemàtica)
Teoria de la informació (Economia)
L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons: http://creativecommons.org/licenses/by-nc-nd/3.0/es/
32 p.
Working Paper
Universitat Rovira i Virgili. Departament d'Economia
Documents de treball del Departament d'Economia;2015-29
         

Full text files in this document

Files Size Format
201529.pdf 771.3 KB PDF

Show full item record

 

Coordination

 

Supporters