Boundedly rational Nash equilibrium: a probabilistic choice approach
This paper proposes an equilibrium concept for n-person finite games based on boundedly rational decision making by players. The players are modeled as following random choice behavior in the manner of the logit model of discrete choice theory as set forth by Luce, McFadden and others. The behavior of other players determines in a natural way a lottery facing each player i. At equilibrium, each player is using the appropriate choice probabilities, given the choice probabilities used by the others in the game. The rationality of the players is parameterized on a continuum from complete rationality to uniform random choice. Using results by McKelvey and Palfrey, we show existence of an equilibrium for any finite n-person game and convergence to Nash equilibrium. We also identify conditions such that, for given rationality parameters the path of choices over time when the players use fictitious play (their beliefs about other players' choices are given by the empirical distributions of those players) converges to equilibrium.
(This abstract was borrowed from another version of this item.)
|Date of creation:|
|Note:||In : Games and Economic Behavior, 18, 32-54, 1997|
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- Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques-François Thisse, 1995.
"The principle of minimum differentiation holds under sufficient heterogeneity,"
ULB Institutional Repository
2013/3317, ULB -- Universite Libre de Bruxelles.
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- Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques-François Thisse, 1999. "The principle of minimum differentiation holds under sufficient heterogeneity," ULB Institutional Repository 2013/3319, ULB -- Universite Libre de Bruxelles.
- Victor Ginsburgh & André De Palma & Yorgo Papageorgiou & Jacques Thisse, 1985. "The principle of Minimum Differentiation Holds under Sufficient Heterogeneity," ULB Institutional Repository 2013/151087, ULB -- Universite Libre de Bruxelles.
- Armen A. Alchian, 1950. "Uncertainty, Evolution, and Economic Theory," Journal of Political Economy, University of Chicago Press, vol. 58, pages 211-211.
- Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer;Game Theory Society, vol. 18(3), pages 273-91.
- McKelvey, Richard D. & Palfrey, Thomas R., 1994.
"Quantal Response Equilibria For Normal Form Games,"
883, California Institute of Technology, Division of the Humanities and Social Sciences.
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