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Modeling Bounded Rationality


  • Ariel Rubinstein


The notion of bounded rationality was initiated in the 1950s by Herbert Simon; only recently has it influenced mainstream economics. In this book, Ariel Rubinstein defines models of bounded rationality as those in which elements of the process of choice are explicitly embedded. The book focuses on the challenges of modeling bounded rationality, rather than on substantial economic implications. In the first part of the book, the author considers the modeling of choice. After discussing some psychological findings, he proceeds to the modeling of procedural rationality, knowledge, memory, the choice of what to know, and group decisions. In the second part, he discusses the fundamental difficulties of modeling bounded rationality in games. He begins with the modeling of a game with procedural rational players and then surveys repeated games with complexity considerations. He ends with a discussion of computability constraints in games. The final chapter includes a critique by Herbert Simon of the author's methodology and the author's response.
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Suggested Citation

  • Ariel Rubinstein, 2005. "Modeling Bounded Rationality," Levine's Bibliography 784828000000000152, UCLA Department of Economics.
  • Handle: RePEc:cla:levrem:784828000000000152

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    References listed on IDEAS

    1. Ariel Rubinstein, 2000. "Economics and Language," Online economics textbooks, SUNY-Oswego, Department of Economics, number lang1, March.
    2. Bull, Jesse & Watson, Joel, 2007. "Hard evidence and mechanism design," Games and Economic Behavior, Elsevier, vol. 58(1), pages 75-93, January.
    3. Jerry R. Green & Jean-Jacques Laffont, 1986. "Partially Verifiable Information and Mechanism Design," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 447-456.
    4. Shin Hyun Song, 1994. "The Burden of Proof in a Game of Persuasion," Journal of Economic Theory, Elsevier, vol. 64(1), pages 253-264, October.
    5. Paul Milgrom & John Roberts, 1986. "Relying on the Information of Interested Parties," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 18-32, Spring.
    6. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    7. Lipman Barton L. & Seppi Duane J., 1995. "Robust Inference in Communication Games with Partial Provability," Journal of Economic Theory, Elsevier, vol. 66(2), pages 370-405, August.
    8. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    9. Michael J. Fishman & Kathleen M. Hagerty, 1990. "The Optimal Amount of Discretion to Allow in Disclosure," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 427-444.
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    1. DeWeaver, Mark A. & Shannon, Randall, 2010. "Waning vigilance and the disposition effect: Evidence from Thailand on individual investor decision making," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 18-23, January.
    2. Schilirò, Daniele, 2012. "Bounded rationality and perfect rationality: psychology into economics," MPRA Paper 41663, University Library of Munich, Germany.
    3. Coralio Ballester & Penélope Hernández, 2010. "Bounded Rationality," ThE Papers 10/10, Department of Economic Theory and Economic History of the University of Granada..
    4. Devetag, Giovanna & Warglien, Massimo, 2003. "Games and phone numbers: Do short-term memory bounds affect strategic behavior?," Journal of Economic Psychology, Elsevier, vol. 24(2), pages 189-202, April.
    5. Luo, Xiao & Ma, Chenghu, 2003. ""Agreeing to disagree" type results: a decision-theoretic approach," Journal of Mathematical Economics, Elsevier, vol. 39(8), pages 849-861, November.
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    7. Malley, Jim & Philippopoulos, Apostolis & Economides, George, 2002. "Testing for tax smoothing in a general equilibrium model of growth," European Journal of Political Economy, Elsevier, vol. 18(2), pages 301-315, June.
    8. Kumabe, Masahiro & Mihara, H. Reiju, 2008. "Computability of simple games: A characterization and application to the core," Journal of Mathematical Economics, Elsevier, vol. 44(3-4), pages 348-366, February.
    9. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    10. Droste, E.J.R. & Kosfeld, M. & Voorneveld, M., 1998. "Regret Equilibria in Games," Discussion Paper 1998-19, Tilburg University, Center for Economic Research.
    11. Cho, In-Koo, 2005. "Introduction to learning and bounded rationality," Journal of Economic Theory, Elsevier, vol. 124(2), pages 127-128, October.
    12. Stocker, Andrea & Großmann, Anett & Madlener, Reinhard & Wolter, Marc Ingo, 2011. "Sustainable energy development in Austria until 2020: Insights from applying the integrated model ""," Energy Policy, Elsevier, vol. 39(10), pages 6082-6099, October.
    13. Indrajit Ray, 2002. "Multiple Equilibrium Problem and Non-Canonical Correlation Devices," Working Papers 2002-24, Brown University, Department of Economics.
    14. repec:eee:jrpoli:v:53:y:2017:i:c:p:356-368 is not listed on IDEAS
    15. Miljkovic, Dragan, 2005. "Rational choice and irrational individuals or simply an irrational theory: A critical review of the hypothesis of perfect rationality," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 34(5), pages 621-634, October.
    16. Hosseini, Hamid, 2003. "The arrival of behavioral economics: from Michigan, or the Carnegie School in the 1950s and the early 1960s?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(4), pages 391-409, September.
    17. M. Utku Unver, 2001. "Internet Auctions with Artificial Adaptive Agents," Computing in Economics and Finance 2001 38, Society for Computational Economics.
    18. Foss, Nicolai J., 2003. "Bounded rationality in the economics of organization: "Much cited and little used"," Journal of Economic Psychology, Elsevier, vol. 24(2), pages 245-264, April.
    19. Hvide, Hans K., 2002. "Pragmatic beliefs and overconfidence," Journal of Economic Behavior & Organization, Elsevier, vol. 48(1), pages 15-28, May.
    20. Anderson, C. Leigh & Cullen, Alison & Stamoulis, Kostas, 2008. "Preference variability along the policy chain in Vietnam," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(5), pages 1729-1745, October.

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    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • B3 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals


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