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Bounded Rationality: Static versus Dynamic Approach

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  • Suren Basov

Abstract

Two kinds of theories of the boundedly rational behavior are possible. Static theories focus on stationary behavior and do not include any explicit mechanism for temporal change. Dynamic theories, on the other hand, explicitly model the fine-grain adjustments made by the subjects in response to their recent experiences. The main contribution of this paper is to argue that the restrictions usually imposed on the distribution of choices in the static approach are generically not supported by an explicit adjustment mechanism.

Suggested Citation

  • Suren Basov, 2002. "Bounded Rationality: Static versus Dynamic Approach," Department of Economics - Working Papers Series 864, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:864
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    References listed on IDEAS

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    1. Chen, Hsiao-Chi & Friedman, James W. & Thisse, Jacques-Francois, 1997. "Boundedly Rational Nash Equilibrium: A Probabilistic Choice Approach," Games and Economic Behavior, Elsevier, vol. 18(1), pages 32-54, January.
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    5. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2001. "Minimum-Effort Coordination Games: Stochastic Potential and Logit Equilibrium," Games and Economic Behavior, Elsevier, vol. 34(2), pages 177-199, February.
    6. Fudenberg, D. & Harris, C., 1992. "Evolutionary dynamics with aggregate shocks," Journal of Economic Theory, Elsevier, vol. 57(2), pages 420-441, August.
    7. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
    8. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1999. "Stochastic Game Theory: Adjustment to Equilibrium Under Noisy Directional Learning," Virginia Economics Online Papers 327, University of Virginia, Department of Economics.
    9. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998. "Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 828-853, August.
    10. Offerman, Theo & Schram, Arthur & Sonnemans, Joep, 1998. "Quantal response models in step-level public good games," European Journal of Political Economy, Elsevier, vol. 14(1), pages 89-100, February.
    11. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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    Cited by:

    1. Lee, Kangil & Han, Taek-Whan, 2016. "How vulnerable is the emissions market to transaction costs?: An ABMS Approach," Energy Policy, Elsevier, vol. 90(C), pages 273-286.
    2. Eran Binenbaum, 2005. "Towards a Relational Economics: Methodological Comments on Intellectual Property Strategy, Industrial Organisation, and Economics," Method and Hist of Econ Thought 0502001, University Library of Munich, Germany.
    3. Suren Basov, 2013. "Emotional Temperature, Probabilistic Choice and the Optimal Power of Incentives," The Economic Record, The Economic Society of Australia, vol. 89, pages 84-94, June.
    4. Hugh Kelley & Tom Evans, 2010. "Measuring the Impact of Behavioral Traders in the Market for Closed-end Country Funds from 2002 to 2009," Chapters, in: Brian Bruce (ed.), Handbook of Behavioral Finance, chapter 16, Edward Elgar Publishing.
    5. Eran Binenbaum, 2005. "Towards a Relational Economics," School of Economics and Public Policy Working Papers 2005-04, University of Adelaide, School of Economics and Public Policy.
    6. Suren Basov & Liam Blanckenberg & Lata Gangadharan, 2007. "Behavioural Anomalies, Bounded Rationality and Simple Heuristics," Department of Economics - Working Papers Series 1012, The University of Melbourne.
    7. Grant, Simon & Quiggin, John, 2013. "Bounded awareness, heuristics and the Precautionary Principle," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 17-31.
    8. Suren Basov, 2010. "Simulation and Inference for Stochastic Differential Equations: With R Examples," The Economic Record, The Economic Society of Australia, vol. 86(272), pages 137-140, March.
    9. Suren Basov, 2003. "Quantal Response Equilibrium with Non-Monotone Probabilities: A Dynamic Approach," Department of Economics - Working Papers Series 880, The University of Melbourne.

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    More about this item

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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