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Bounded Rationality:Static Versus Dynamic Approaches

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  • Suren Basov

Abstract

Two kinds of theories of 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 a dynamic adjustment mechanism. The genericity here is understood both in the measure theoretic and in the topological sense.

Suggested Citation

  • Suren Basov, 2003. "Bounded Rationality:Static Versus Dynamic Approaches," Department of Economics - Working Papers Series 874, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:874
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    File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-03/874.pdf
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    References listed on IDEAS

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    5. 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.
    6. 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.
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    8. 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. Eran Binenbaum, 2005. "Towards a Relational Economics: Methodological Comments on Intellectual Property Strategy, Industrial Organisation, and Economics," Method and Hist of Econ Thought 0502001, EconWPA.
    2. 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.
    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. 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.
    5. 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: Handbook of Behavioral Finance, chapter 16 Edward Elgar Publishing.
    6. Grant, Simon & Quiggin, John, 2013. "Bounded awareness, heuristics and the Precautionary Principle," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 17-31.
    7. Eran Binenbaum, 2005. "Towards a Relational Economics," School of Economics Working Papers 2005-04, University of Adelaide, School of Economics.
    8. Suren Basov, 2003. "Quantal Response Equilibrium with Non-Monotone Probabilities: A Dynamic Approach," Department of Economics - Working Papers Series 880, The University of Melbourne.

    More about this item

    JEL classification:

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

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