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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. Barlo, Mehmet & Carmona, Guilherme & Sabourian, Hamid, 2009. "Repeated games with one-memory," Journal of Economic Theory, Elsevier, vol. 144(1), pages 312-336, January.
    3. Barr, Jason & Saraceno, Francesco, 2009. "Organization, learning and cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 39-53, May.
    4. repec:spo:wpecon:info:hdl:2441/9832 is not listed on IDEAS
    5. 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.
    6. Barr, Jason & Saraceno, Francesco, 2002. "A computational theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 49(3), pages 345-361, November.
    7. 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.
    8. 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.
    9. repec:spo:wpecon:info:hdl:2441/6782 is not listed on IDEAS

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