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Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints

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Marco Casari ()

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Abstract

In 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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Paper 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.

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Length: 28
Date of creation: 29 Mar 2003
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Handle: RePEc:aub:autbar:583.03

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Related research
Keywords: 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 and Programming - - - Computational Techniques

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  1. Orlando Gomes, 2004. "Volatility, Heterogeneous Agents and Chaos," GE, Growth, Math methods 0409010, EconWPA. [Downloadable!]
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