Bounded Rationality in Randomization
In repeated games with Nash equilibria in mixed strategies, players optimize by playing randomly. Players are boundedly rational in their randomization eï¿½orts. Arguably, they have no internal randomization facility and they fashion external randomization aids from the environment. By conditioning on past play, boundedly rational players exhibit a pattern. The pattern is characterized by cognitive limitations variously called local representativeness, the law of small numbers or the gamblerâ€™s fallacy. I find one such patternâ€”balance then runsâ€”in re-analysis of existing data for matching pennies experiments. While players and play are heterogeneous, the pattern makes prediction plausible. I implement prediction with a non-linear autoregression. Model 1 is a statistically and substantively significant tool for predicting behavior in matching pennies. There is evidence for two other behavioral models, both of which require some sort of sophisticationâ€”including a model of the opponent as boundedly rational.
|Date of creation:||01 Sep 2003|
|Date of revision:|
|Contact details of provider:|| Postal: 9500 Gilman Drive, La Jolla, CA 92093-0508|
Phone: (858) 534-3383
Fax: (858) 534-7040
Web page: http://www.escholarship.org/repec/ucsdecon/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy C. Salmon, 2001. "An Evaluation of Econometric Models of Adaptive Learning," Econometrica, Econometric Society, vol. 69(6), pages 1597-1628, November.
- Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
- Costa-Gomes, Miguel & Crawford, Vincent P. & Broseta, Bruno, 1998.
"Cognition and Behavior in Normal-Form Games: An Experimental Study,"
University of California at San Diego, Economics Working Paper Series
qt1vn4h7x5, Department of Economics, UC San Diego.
- Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001. "Cognition and Behavior in Normal-Form Games: An Experimental Study," Econometrica, Econometric Society, vol. 69(5), pages 1193-1235, September.
- Broseta, Bruno & Costa-Gomes, Miguel & Crawford, Vincent P., 2000. "Cognition and Behavior in Normal-Form Games: An Experimental Study," University of California at San Diego, Economics Working Paper Series qt0fp8278k, Department of Economics, UC San Diego.
- Miguel Costa-Gomes & Vincent P. Crawford & Bruno Broseta, . "Cognition and Behavior in Normal-Form Games:An Experimental Study," Discussion Papers 00/45, Department of Economics, University of York.
- Matthew Rabin, 2002. "Inference by Believers in the Law of Small Numbers," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 775-816.
- Drew Fudenberg & David K. Levine, 1996.
"The Theory of Learning in Games,"
Levine's Working Paper Archive
624, David K. Levine.
- O'Neill, Barry, 1991. "Comments on Brown and Rosenthal's Reexamination [Testing the Minimax Hypothesis, A Reexamination of O'Neill's Game Experiment]," Econometrica, Econometric Society, vol. 59(2), pages 503-07, March.
- Oechssler, Jorg & Schipper, Burkhard, 2003.
"Can you guess the game you are playing?,"
Games and Economic Behavior,
Elsevier, vol. 43(1), pages 137-152, April.
- Shachat, Jason M., 2002. "Mixed Strategy Play and the Minimax Hypothesis," Journal of Economic Theory, Elsevier, vol. 104(1), pages 189-226, May.
When requesting a correction, please mention this item's handle: RePEc:cdl:ucsdec:qt1974b8tz. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.