The observation of the actual behavior by economic decision makers in the lab and in the field justifies that bounded rationality has been a generally accepted assumption in many socio-economic models. The goal of this paper is to illustrate the difficulties involved in providing a correct definition of what a rational (or irrational) agent is. In this paper we describe two frameworks that employ different approaches for analyzing bounded rationality. The first is a spatial segregation set-up that encompasses two optimization methodologies: backward induction and forward induction. The main result is that, even under the same state of knowledge, rational and non-rational agents may match their actions. The second framework elaborates on the relationship between irrationality and informational restrictions. We use the beauty contest (Nagel, 1995) as a device to explain this relationship.
|Date of creation:||01 Oct 2010|
|Contact details of provider:|| Postal: Campus Universitario de Cartuja|
Web page: http://www.ugr.es/local/teoriahe
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- Juan Miguel Benito & Pablo Branas-Garz & Penelope Hernandez & Juan A. Sanchis, 2011.
"Strategic behavior in Schelling dynamics: A new result and experimental evidence,"
11-14, Chapman University, Economic Science Institute.
- Juan Miguel Benito & Pablo Brañas-Garza & Penélope Hernández & Juan A. Sanchis, 2012. "Strategic behavior in Schelling dynamics: A new result and experimental evidence," Discussion Papers in Economic Behaviour 0312, University of Valencia, ERI-CES.
- Juan M. Benito-Ostolaza & Pablo Brañas-Garza & Penélope Hernández, 2015. "Strategic behaviour in Schelling dynamics: Theory and experimental evidence," Working Papers 1504, Department of Applied Economics II, Universidad de Valencia.
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- Herbert A. Simon, 1991. "Bounded Rationality and Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 125-134, February.
- Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-493, May.
- Govindan, Srihari & Robson, Arthur J., 1998. "Forward Induction, Public Randomization, and Admissibility," Journal of Economic Theory, Elsevier, vol. 82(2), pages 451-457, October.
- Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
- Ballester, Coralio, 2004. "NP-completeness in hedonic games," Games and Economic Behavior, Elsevier, vol. 49(1), pages 1-30, October.
- Ariel Rubinstein, 1997. "Modeling Bounded Rationality," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262681005, December.
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