Stability of Equilibria in Games with Procedurally Rational Players
AbstractOne approach to the modeling of bounded rationality in strategic environments is based on the dynamics of evolution and learning in games. An entirely different approach has been developed recently by Osborne and Rubinstein (1998). This latter approach is static and equilibrium based, but relies on less stringent assumptions regarding the knowledge and understanding of players than does the standard theory of Nash equilibrium. This paper formalizes Osborne and Rubinstein's dynamic interpretation of their equilibrium concept and thereby facilitates a comparison of this approach with the explicitly dynamic approach of evolutionary game theory. It turns out that the two approaches give rise to radically different static and dynamic predictions. For instance, dynamically stable equilibria can involve the playing of strictly dominated actions, and equilibria in which strictly actions are played with probability 1 can be unstable. Sufficient conditions for the instability of equilibria are provided for symmetric and asymmetric games.
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Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 9811003.
Length: 23 pages
Date of creation: 16 Nov 1998
Date of revision: 04 Mar 1999
Note: Type of Document - Tex; prepared on IBM PC; to print on HP/PostScript; pages: 23; figures: included
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Dynamic Stability; S(1) Equilibrium; Procedural Rationality; Evolutionary Games;
Other versions of this item:
- Sethi, Rajiv, 2000. "Stability of Equilibria in Games with Procedurally Rational Players," Games and Economic Behavior, Elsevier, vol. 32(1), pages 85-104, July.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-12-09 (All new papers)
- NEP-EVO-1998-12-09 (Evolutionary Economics)
- NEP-GTH-1998-12-09 (Game Theory)
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