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Approximate Truth in Economic Modelling

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  • Geoffrey Brennan
  • Werner Güth

    ()

  • Hartmut Kliemt

Abstract

Economic intuitions concerning rational behaviour in interactive social situations are shaped by idealized models which are regarded as "approximately true". But ideal models cannot be meaningfully deemed approximately true unless asymptotically convergent processes imply them as limit cases. We illustrate by various examples - infinitely patient customers on durable monopoly markets, homogeneity of commodities, super-games etc. - how this necessary methodological requirement is almost routinely neglected. On this basis we draw some conclusions concerning the continuity between abstract and less abstract models on the one and the world modelled by them on the other hand.

Suggested Citation

  • Geoffrey Brennan & Werner Güth & Hartmut Kliemt, 2004. "Approximate Truth in Economic Modelling," Papers on Strategic Interaction 2004-38, Max Planck Institute of Economics, Strategic Interaction Group.
  • Handle: RePEc:esi:discus:2004-38
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    File URL: ftp://papers.econ.mpg.de/esi/discussionpapers/2004-38.pdf
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    References listed on IDEAS

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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
    2. Anderhub, Vital & Engelmann, Dirk & Guth, Werner, 2002. "An experimental study of the repeated trust game with incomplete information," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 197-216, June.
    3. Klaus Ritzberger & Werner Güth, 1998. "On durable goods monopolies and the Coase-Conjecture," Review of Economic Design, Springer;Society for Economic Design, vol. 3(3), pages 215-236.
    4. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
    5. Weibull, Jörgen W., 2000. "Testing Game Theory," SSE/EFI Working Paper Series in Economics and Finance 382, Stockholm School of Economics, revised 16 Apr 2002.
    6. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    7. Larry Samuelson, 2004. "Modeling Knowledge in Economic Analysis," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 367-403, June.
    8. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-149, April.
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    Cited by:

    1. Werner Güth & Kerstin Pull & Manfred Stadler, 2011. "Intrafirm Conflicts and Interfirm Price Competition," Jena Economic Research Papers 2011-042, Friedrich-Schiller-University Jena.
    2. Güth, Werner, 2010. "The Generosity Game and calibration of inequity aversion," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 155-157, April.

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