This essay illustrates that if Savage's small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of endowment effects in exchange.
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Length: 26 pages Date of creation: 01 Jan 1996 Date of revision: Handle: RePEc:boc:bocoec:336
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Find related papers by JEL classification: D0 - Microeconomics - - General J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Martin J. Osborne & Ariel Rubinstein, 1994.
"A Course in Game Theory,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262650401.
Other versions:
Dye, Ronald A, 1985.
"Costly Contract Contingencies,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(1), pages 233-50, February.
Itzhak Gilboa & David Schmeidler, 1992.
"Case-Based Decision Theory,"
Discussion Papers
994, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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