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Bounded rationality and small worlds

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  • Simon Grant

    ()
    (Department of Economics, Rice University)

  • John Quiggin

    ()
    (Department of Economics, University of Queensland)

Abstract

We consider conditions under which the representation of the world available to a boundedly rational decision-maker, whose awareness in- creases over time, constitutes an adequate `small world' (in the sense of Savage 1954) for the assessment of a given decision. Equivalently, we consider whether boundedly rational decision-makers who gradu- ally become aware of all relevant contingencies, can pursue a strategy that is sequentially consistent. We derive conditions on beliefs and preferences that yield a separation between the set of propositions of which the boundedly rational decision-maker is aware and those of which she is unaware and show that these conditions are sufficient to ensure sequential consistency.

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Bibliographic Info

Paper provided by Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WPR08_2.

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Date of creation: Jun 2008
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Handle: RePEc:rsm:riskun:r08_2

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  1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2005. "Interactive Unawareness," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 52, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Cited by:
  1. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer, vol. 54(3), pages 717-755, November.
  2. Burkhard Schipper, 2010. "Revealed Unawareness," Working Papers 105, University of California, Davis, Department of Economics.

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