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Bounded Rationality, Neural Network and Folk Theorem in Repeated Games with Discounting

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  • Cho, In-Koo

Abstract

The perfect folk theorem (Fudenberg and Maskin, 1986) need not rely on excessively complex strategies. We recover the perfect folk theorem for two person repeated games with discounting through neural networks (Hopfield, 1982) that have finitely many associative units. For any individually rational payoff vector, we need neural networks with at most seven associative units, each of which can handle only elementary calculations such as maximum, minimum or threshold operation. The uniform upper bound of the complexity of equilibrium strategies differentiates this paper from Ben-Porath and Peleg (1987) in which we need to admit ever more complex strategies in order to expand the set of equilibrium outcomes.

Suggested Citation

  • Cho, In-Koo, 1994. "Bounded Rationality, Neural Network and Folk Theorem in Repeated Games with Discounting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(6), pages 935-957, October.
    • Handle: RePEc:spr:joecth:v:4:y:1994:i:6:p:935-57
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    Cited by:

    1. Barlo, Mehmet & Carmona, Guilherme & Sabourian, Hamid, 2016. "Bounded memory Folk Theorem," Journal of Economic Theory, Elsevier, vol. 163(C), pages 728-774.
    2. Sylvain Béal, 2010. "Perceptron versus automaton in the finitely repeated prisoner’s dilemma," Theory and Decision, Springer, vol. 69(2), pages 183-204, August.
    3. Barlo, Mehmet & Carmona, Guilherme & Sabourian, Hamid, 2009. "Repeated games with one-memory," Journal of Economic Theory, Elsevier, vol. 144(1), pages 312-336, January.
    4. Barr, Jason & Saraceno, Francesco, 2009. "Organization, learning and cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 39-53, May.
    5. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 345-361, November.
    6. Sent, Esther-Mirjam, 2004. "The legacy of Herbert Simon in game theory," Journal of Economic Behavior & Organization, Elsevier, vol. 53(3), pages 303-317, March.
    7. repec:spo:wpmain:info:hdl:2441/9832 is not listed on IDEAS
    8. Sylvain Béal, 2006. "Perceptron versus Automaton," Post-Print hal-00375344, HAL.
    9. repec:spo:wpecon:info:hdl:2441/9832 is not listed on IDEAS
    10. repec:hal:spmain:info:hdl:2441/9832 is not listed on IDEAS
    11. Horaguchi, Haruo, 1996. "The role of information processing cost as the foundation of bounded rationality in game theory," Economics Letters, Elsevier, vol. 51(3), pages 287-294, June.
    12. repec:hal:spmain:info:hdl:2441/6782 is not listed on IDEAS
    13. Sgroi, Daniel & Zizzo, Daniel John, 2009. "Learning to play 3×3 games: Neural networks as bounded-rational players," Journal of Economic Behavior & Organization, Elsevier, vol. 69(1), pages 27-38, January.
    14. repec:hal:wpspec:info:hdl:2441/9832 is not listed on IDEAS
    15. repec:spo:wpecon:info:hdl:2441/6782 is not listed on IDEAS
    16. Barr, Jason & Saraceno, Francesco, 2005. "Cournot competition, organization and learning," Journal of Economic Dynamics and Control, Elsevier, vol. 29(1-2), pages 277-295, January.
    17. repec:hal:wpspec:info:hdl:2441/6782 is not listed on IDEAS
    18. repec:spo:wpmain:info:hdl:2441/6782 is not listed on IDEAS
    19. Béal, Sylvain, 2007. "Perceptron Versus Automaton∗," Sonderforschungsbereich 504 Publications 07-58, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.

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