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Equilibrium Concepts for Boundedly Rational Behavior in Games

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  • Markus Pasche

    ()
    (University of Jena, Faculty of Economics)

Abstract

The paper extends the Nash equilibrium concept to account for arbitrary behavioral heuristics. Players are allowed not only to choose strategies, but also to select behavioral rules how to choose strategies. It is argued that behavioral profiles are in equilibrium if no player can benefit from deviating to another strategy, another behavioral rule or its parametrization. It turns out that in general payoff maximization is not a dominant behavioral rule. Furthermore it is shown that heterogeneous behavior may endogeneously evolve even in case of a unique symmetric Nash equilibrium.

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File URL: http://www.wiwi.uni-jena.de/Papers/wp-b0103.pdf
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Bibliographic Info

Paper provided by Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät in its series Working Paper Series B with number 2001-03.

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Date of creation: 01 May 2001
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Handle: RePEc:jen:jenavo:2001-03

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Related research

Keywords: Nash equilibrium; behavioral profiles; heterogenity; bounded rationality;

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References

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  1. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
  2. Shubik, Martin, 1996. "Why equilibrium? A note on the noncooperative equilibria of some matrix games," Journal of Economic Behavior & Organization, Elsevier, vol. 29(3), pages 537-539, May.
  3. Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
  4. Reinoud Joosten, 1996. "Deterministic evolutionary dynamics: a unifying approach," Journal of Evolutionary Economics, Springer, vol. 6(3), pages 313-324.
  5. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
  6. Lipman, Barton L, 1991. "How to Decide How to Decide How to. . . : Modeling Limited Rationality," Econometrica, Econometric Society, vol. 59(4), pages 1105-25, July.
  7. Robert W. Rosenthal, 1992. "Rules of Thumb in Games," Papers 0034, Boston University - Industry Studies Programme.
  8. Conlisk, John, 1988. "Optimization cost," Journal of Economic Behavior & Organization, Elsevier, vol. 9(3), pages 213-228, April.
  9. Sugden, Robert, 1985. "Why Be Consistent? A Critical Analysis of Consistency Requirements in Choice Theory," Economica, London School of Economics and Political Science, vol. 52(206), pages 167-83, May.
  10. Colin F. Camerer, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-188, Fall.
  11. Schoemaker, Paul J. H., 1991. "Choices involving uncertain probabilities : Tests of generalized utility models," Journal of Economic Behavior & Organization, Elsevier, vol. 16(3), pages 295-317, December.
  12. Markus Pasche, 2002. "Heterogeneous Behavioral Rules in the Oligopolistic Case," Working Paper Series B 2002-01, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
  13. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
  14. Camerer, Colin, . "Progress and Behavioral Game Theory," Working Papers 1004, California Institute of Technology, Division of the Humanities and Social Sciences.
  15. Mainwaring, Lynn, 1997. "Maximisation and melioration as alternative forms of firm behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 395-411, March.
  16. Harless, David W & Camerer, Colin F, 1994. "The Predictive Utility of Generalized Expected Utility Theories," Econometrica, Econometric Society, vol. 62(6), pages 1251-89, November.
  17. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
  18. Barton L. Lipman, 1995. "Information Processing and Bounded Rationality: A Survey," Canadian Journal of Economics, Canadian Economics Association, vol. 28(1), pages 42-67, February.
  19. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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Citations

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Cited by:
  1. Markus Pasche, 2002. "Heterogeneous Behavioral Rules in the Oligopolistic Case," Working Paper Series B 2002-01, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.
  2. Markus Pasche, 2002. "Playing Fair: Rationality and Norm-guided Behavior in Games," Working Paper Series B 2002-02, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät.

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