Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints
AbstractIn this paper we explore the effect of bounded rationality on the convergence of individual behavior toward equilibrium. In the context of a Cournot game with a unique and symmetric Nash equilibrium, firms are modeled as adaptive economic agents through a genetic algorithm. Computational experiments show that (1) there is remarkable heterogeneity across identical but boundedly rational agents; (2) such individual heterogeneity is not simply a consequence of the random elements contained in the genetic algorithm; (3) the more rational agents are in terms of memory abilities and pre-play evaluation of strategies, the less heterogeneous they are in their actions. At the limit case of full rationality, the outcome converges to the standard result of uniform individual behavior.
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Bibliographic InfoPaper provided by Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) in its series UFAE and IAE Working Papers with number 583.03.
Date of creation: 29 Mar 2003
Date of revision:
bounded rationality; genetic algorithms; individual heterogeneitybounded rationality; genetic algorithms; individual heterogeneity;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-09-08 (All new papers)
- NEP-CBE-2003-09-08 (Cognitive & Behavioural Economics)
- NEP-EXP-2003-09-08 (Experimental Economics)
- NEP-GTH-2003-09-08 (Game Theory)
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