IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/62688.html
   My bibliography  Save this paper

Dynamic Games under Bounded Rationality

Author

Listed:
  • Zhao, Guo

Abstract

I propose a dynamic game model that is consistent with the paradigm of bounded rationality. Its main advantages over the traditional approach based on perfect rationality are that: (1) the strategy space is a chain-complete partially ordered set; (2) the response function is certain order-preserving map on strategy space; (3) the evolution of economic system can be described by the Dynamical System defined by the response function under iteration; (4) the existence of pure-strategy Nash equilibria can be guaranteed by fixed point theorems for ordered structures, rather than topological structures. This preference-response framework liberates economics from the utility concept, and constitutes a marriage of normal-form and extensive-form games.

Suggested Citation

  • Zhao, Guo, 2015. "Dynamic Games under Bounded Rationality," MPRA Paper 62688, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62688
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/62688/1/MPRA_paper_62688.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/66140/1/MPRA_paper_66140.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
    2. Zhou Lin, 1994. "The Set of Nash Equilibria of a Supermodular Game Is a Complete Lattice," Games and Economic Behavior, Elsevier, vol. 7(2), pages 295-300, September.
    3. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    4. John C. Harsanyi, 1968. "Games with Incomplete Information Played by "Bayesian" Players Part II. Bayesian Equilibrium Points," Management Science, INFORMS, vol. 14(5), pages 320-334, January.
    5. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    6. Aumann, Robert J., 1998. "On the Centipede Game," Games and Economic Behavior, Elsevier, vol. 23(1), pages 97-105, April.
    7. Ho, Teck-Hua & Camerer, Colin & Weigelt, Keith, 1998. "Iterated Dominance and Iterated Best Response in Experimental "p-Beauty Contests."," American Economic Review, American Economic Association, vol. 88(4), pages 947-969, September.
    8. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
    9. Sen, Amartya, 1970. "The Impossibility of a Paretian Liberal," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 152-157, Jan.-Feb..
    10. George J. Stigler, 1950. "The Development of Utility Theory. II," Journal of Political Economy, University of Chicago Press, vol. 58, pages 373-373.
    11. Aumann, Robert J., 1997. "Rationality and Bounded Rationality," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 2-14, October.
    12. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    13. John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
    14. Rosenthal, Robert W., 1981. "Games of perfect information, predatory pricing and the chain-store paradox," Journal of Economic Theory, Elsevier, vol. 25(1), pages 92-100, August.
    15. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-1277, November.
    16. Kenneth J. Arrow, 1950. "A Difficulty in the Concept of Social Welfare," Journal of Political Economy, University of Chicago Press, vol. 58(4), pages 328-328.
    17. James M. Buchanan, 1954. "Individual Choice in Voting and the Market," Journal of Political Economy, University of Chicago Press, vol. 62(4), pages 334-334.
    18. Robin Hahnel & Kristen Sheeran, 2009. "Misinterpreting the Coase Theorem," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(1), pages 215-238.
    19. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    20. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
    21. Aumann, Robert J., 1995. "Backward induction and common knowledge of rationality," Games and Economic Behavior, Elsevier, vol. 8(1), pages 6-19.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Committee, Nobel Prize, 2020. "Improvements to auction theory and inventions of new auction formats," Nobel Prize in Economics documents 2020-2, Nobel Prize Committee.
    2. Estrella Alonso & Joaquin Sanchez-Soriano & Juan Tejada, 2015. "A parametric family of two ranked objects auctions: equilibria and associated risk," Annals of Operations Research, Springer, vol. 225(1), pages 141-160, February.
    3. Estrella Alonso & Joaquín Sánchez-Soriano & Juan Tejada, 2020. "Mixed Mechanisms for Auctioning Ranked Items," Mathematics, MDPI, vol. 8(12), pages 1-26, December.
    4. García-Pola, Bernardo & Iriberri, Nagore & Kovářík, Jaromír, 2020. "Non-equilibrium play in centipede games," Games and Economic Behavior, Elsevier, vol. 120(C), pages 391-433.
    5. Roger B. Myerson, 2004. "Comments on "Games with Incomplete Information Played by 'Bayesian' Players, I--III Harsanyi's Games with Incoplete Information"," Management Science, INFORMS, vol. 50(12_supple), pages 1818-1824, December.
    6. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    7. Graciela Kuechle, 2009. "What Happened To The Three‐Legged Centipede Game?," Journal of Economic Surveys, Wiley Blackwell, vol. 23(3), pages 562-585, July.
    8. Jonathan Newton, 2018. "Evolutionary Game Theory: A Renaissance," Games, MDPI, vol. 9(2), pages 1-67, May.
    9. McCannon, Bryan C. & Minuci, Eduardo, 2020. "Shill bidding and trust," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    10. Krockow, Eva M. & Pulford, Briony D. & Colman, Andrew M., 2018. "Far but finite horizons promote cooperation in the Centipede game," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 191-199.
    11. Etro, Federico, 2017. "Research in economics and game theory. A 70th anniversary," Research in Economics, Elsevier, vol. 71(1), pages 1-7.
    12. Teck-Hua Ho & Xuanming Su, 2013. "A Dynamic Level-k Model in Sequential Games," Management Science, INFORMS, vol. 59(2), pages 452-469, March.
    13. Helmedag Fritz, 2021. "Basic Bidding Formats: Characteristics and Differences," Review of Economics, De Gruyter, vol. 72(3), pages 183-197, November.
    14. Garrett van Ryzin & Gustavo Vulcano, 2004. "Optimal Auctioning and Ordering in an Infinite Horizon Inventory-Pricing System," Operations Research, INFORMS, vol. 52(3), pages 346-367, June.
    15. Bogetoft, Peter & Nielsen, Kurt, 2003. "Yardstick Based Procurement Design In Natural Resource Management," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25910, International Association of Agricultural Economists.
    16. Strzalecki, Tomasz, 2014. "Depth of reasoning and higher order beliefs," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 108-122.
    17. Jacob K. Goeree & Charles A. Holt, 2001. "Ten Little Treasures of Game Theory and Ten Intuitive Contradictions," American Economic Review, American Economic Association, vol. 91(5), pages 1402-1422, December.
    18. Benjamin Patrick Evans & Mikhail Prokopenko, 2021. "Bounded rationality for relaxing best response and mutual consistency: The Quantal Hierarchy model of decision-making," Papers 2106.15844, arXiv.org, revised Mar 2023.
    19. Nobuyuki Hanaki & Nicolas Jacquemet & Stéphane Luchini & Adam Zylbersztejn, 2016. "Fluid intelligence and cognitive reflection in a strategic environment: evidence from dominance-solvable games," Post-Print hal-01359231, HAL.
    20. Sundström, David, 2016. "On Specification and Inference in the Econometrics of Public Procurement," Umeå Economic Studies 931, Umeå University, Department of Economics.

    More about this item

    Keywords

    Dynamic Games; Bounded Rationality; Dynamical System; fixed point theorems; chain-complete partially ordered set; Coase theorem; impossibility theorem; Keynesian beauty contest; Bertrand Paradox; backward induction paradox;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:62688. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.