Lying for the Greater Good: Bounded Rationality in a Team
AbstractThe article is concerned with the interaction between fully and boundedly rational agents in situations where their interests are perfectly aligned. The cognitive limitations of the boundedly rational agent do not allow him to fully understand the market conditions and lead him to take non-optimal decisions in some situations. Using categorization to model bounded rationality, we show that the fully rational agent can manipulate information to help decreasing the expected loss caused by the boundedly rational agent. Assuming different types for the boundedly rational agent, who differ only in the categories used, we show that the fully rational agent may learn the type of the boundedly rational agent along their interaction. Using this additional information, the outcome can be improved and the amount of manipulated information can be decreased. Furthermore, as the length of the interaction gets longer the probability that the fully rational agent learns the type of the boundedly rational agent increases.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Applied Mathematics, Università Ca' Foscari Venezia in its series Working Papers with number 199.
Length: 17 pages
Date of creation: Sep 2010
Date of revision:
Bounded rationality; categorization; learning.;
Find related papers by JEL classification:
- C00 - Mathematical and Quantitative Methods - - General - - - General
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-CBE-2010-10-02 (Cognitive & Behavioural Economics)
- NEP-CTA-2010-10-02 (Contract Theory & Applications)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marco LiCalzi).
If references are entirely missing, you can add them using this form.