Bounded versus unbounded rationality: The tyranny of the weak
We examine the case of a two-person repeated game played by a boundedly rational player versus an unboundedly rational opponent. The former is restricted to strategies which are implementable by connected finite automata. It is shown that the "rational" player has a dominant strategy, and that in some cases the "weaker" (boundedly rational) player may exploit this fact to "blackmail" him. It is also shown that for a repeated zero-sum game, the rational player has a strategy which drives the automaton player's limit payoff down to his security (maxmin) level, even if he may choose any finite automaton.
(This abstract was borrowed from another version of this item.)