Bounded rationality and small worlds
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.
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- Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2006.
Journal of Economic Theory,
Elsevier, vol. 130(1), pages 78-94, September.
- HEIFETZ, Aviad & MEIER, Martin & SCHIPPER, Burkhard C., 2004. "Interactive unawareness," CORE Discussion Papers 2004059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Heifetz, Aviad & Meier, Martin & Schipper, Burkhard C., 2005. "Interactive Unawareness," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 52, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.