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Bounded rationality and small worlds

Author

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  • Simon Grant

    () (Department of Economics, Rice University)

  • John Quiggin

    () (Department of Economics, University of Queensland)

Abstract

We consider conditions under which the representation of the world available to a boundedly rational decision-maker, whose awareness in- creases over time, constitutes an adequate `small world' (in the sense of Savage 1954) for the assessment of a given decision. Equivalently, we consider whether boundedly rational decision-makers who gradu- ally become aware of all relevant contingencies, can pursue a strategy that is sequentially consistent. We derive conditions on beliefs and preferences that yield a separation between the set of propositions of which the boundedly rational decision-maker is aware and those of which she is unaware and show that these conditions are sufficient to ensure sequential consistency.

Suggested Citation

  • Simon Grant & John Quiggin, 2008. "Bounded rationality and small worlds," Risk & Uncertainty Working Papers WPR08_2, Risk and Sustainable Management Group, University of Queensland.
  • Handle: RePEc:rsm:riskun:r08_2
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    File URL: http://www.uq.edu.au/rsmg/WP/WPR08_2.pdf
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    References listed on IDEAS

    as
    1. Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006. "Interactive unawareness," Journal of Economic Theory, Elsevier, vol. 130(1), pages 78-94, September.
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    Cited by:

    1. Burkhard Schipper, 2010. "Revealed Unawareness," Working Papers 105, University of California, Davis, Department of Economics.
    2. Simon Grant & John Quiggin, 2013. "Inductive reasoning about unawareness," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 54(3), pages 717-755, November.

    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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