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Updating Strategies Through Observed Play - Optimization Under Bounded Rationality

  • R. Cressman
  • K.H. Schlag

Individuals repeatedly face a multi-decision task with unknown payoff distributions. They have minimal memory and update their strategy by observing previous play (and not strategy) of someone else. We select behavior rules that increase average payoffs as often as possible in a large population where all use the same rule. Here imitation generalizes to a pasting procedure. When decisions within the task are unrelated, individuals eventually learn the efficient strategy but the underlying dynamic is not monotone. However, when choices influence which decisions are subsequently faced in the task, play may not be efficient in the long run as it approaches a Nash equilibrium of the agent normal form.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfb/bonsfb432.pdf
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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfb/bonsfb432.ps
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 432.

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Date of creation: Apr 1998
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Handle: RePEc:bon:bonsfb:432
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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