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Bounded rationality and small worlds

Author

Listed:
  • 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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    Cited by:

    1. Burkhard Schipper, 2010. "Revealed Unawareness," Working Papers 303, University of California, Davis, Department of Economics.
    2. Pope, Robin & Selten, Reinhard & Kube, Sebastian, 2009. "Nominalist Heuristics and Economic Theory," Bonn Econ Discussion Papers 17/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).
    3. Schipper, Burkhard C, 2010. "Revealed Unawareness," MPRA Paper 21491, University Library of Munich, Germany.
    4. Takashi Hayashi, 2012. "Expanding state space and extension of beliefs," Theory and Decision, Springer, vol. 73(4), pages 591-604, October.
    5. 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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