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Why Imitate, and if so, How? A Bounded Rational Approach to Multi-Armed Bandits

  • Karl H. Schlag

We consider the situation in which individuals in a finite population must repeatedly choose an action yielding an uncertain payoff. Between choices, each individual may observe the performance of one other individual. We search for rules of behavior with limited memory that increase expected payoffs for any underlying payoff distribution. It is shown that the rule that outperforms all other rules with this property is the one that specifies imitation of the action of an individual that performed better with a probability proportional to how much better she performed. When each individual uses this best rule, the aggregate population behavior can be approximated by the replicator dynamic.

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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 361.

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Length: pages
Date of creation: Dec 1995
Date of revision: Mar 1996
Handle: RePEc:bon:bonsfb:361
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
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References listed on IDEAS
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  1. Karl H. Schlag, . "Why Imitate, and if so, How? A Bounded Rational Approach to Multi- Armed Bandits," ELSE working papers 028, ESRC Centre on Economics Learning and Social Evolution.
  2. A. Cabrales, 2010. "Stochastic Replicator Dynamics," Levine's Working Paper Archive 489, David K. Levine.
  3. Schmalensee, Richard, 1975. "Alternative models of bandit selection," Journal of Economic Theory, Elsevier, vol. 10(3), pages 333-342, June.
  4. Borgers, Tilman & Sarin, Rajiv, 1997. "Learning Through Reinforcement and Replicator Dynamics," Journal of Economic Theory, Elsevier, vol. 77(1), pages 1-14, November.
  5. Samuelson, L., 1989. "Evolutionnary Stability In Asymmetric Games," Papers 11-8-2, Pennsylvania State - Department of Economics.
  6. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
  7. Björnerstedt, Jonas & Weibull, Jörgen W., 1994. "Nash Equilibrium and Evolution by Imitation," Working Paper Series 407, Research Institute of Industrial Economics.
  8. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
  9. Dan Friedman, 2010. "Evolutionary Games in Economics," Levine's Working Paper Archive 392, David K. Levine.
  10. Binmore Kenneth G. & Samuelson Larry & Vaughan Richard, 1995. "Musical Chairs: Modeling Noisy Evolution," Games and Economic Behavior, Elsevier, vol. 11(1), pages 1-35, October.
  11. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
  12. David Easley & Aldo Rustichini, 1999. "Choice without Beliefs," Econometrica, Econometric Society, vol. 67(5), pages 1157-1184, September.
  13. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B 296, University of Bonn, Germany.
  14. Schlag, Karl H., 1996. "Which one should I imitate?," Discussion Paper Serie B 365, University of Bonn, Germany.
  15. Rothschild, Michael, 1974. "A two-armed bandit theory of market pricing," Journal of Economic Theory, Elsevier, vol. 9(2), pages 185-202, October.
  16. Helbing, Dirk, 1992. "Interrelations between stochastic equations for systems with pair interactions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 181(1), pages 29-52.
  17. Matsui, Akihiko, 1992. "Best response dynamics and socially stable strategies," Journal of Economic Theory, Elsevier, vol. 57(2), pages 343-362, August.
  18. Boylan, Richard T., 1992. "Laws of large numbers for dynamical systems with randomly matched individuals," Journal of Economic Theory, Elsevier, vol. 57(2), pages 473-504, August.
  19. repec:att:wimass:9325 is not listed on IDEAS
  20. repec:tpr:qjecon:v:107:y:1992:i:3:p:797-817 is not listed on IDEAS
  21. Jonas Bjoernerstedt & Karl H. Schlag, . "On the Evolution of Imitative Behavior," ELSE working papers 029, ESRC Centre on Economics Learning and Social Evolution.
  22. Samuelson, Larry & Zhang, Jianbo, 1992. "Evolutionary stability in asymmetric games," Journal of Economic Theory, Elsevier, vol. 57(2), pages 363-391, August.
  23. Gale, John & Binmore, Kenneth G. & Samuelson, Larry, 1995. "Learning to be imperfect: The ultimatum game," Games and Economic Behavior, Elsevier, vol. 8(1), pages 56-90.
  24. L. Samuelson & J. Zhang, 2010. "Evolutionary Stability in Asymmetric Games," Levine's Working Paper Archive 453, David K. Levine.
  25. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
  26. repec:tpr:qjecon:v:87:y:1973:i:2:p:239-66 is not listed on IDEAS
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