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A Behavioral Approach to a Strategic Market Game

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  • Martin Shubik
  • Nicolaas J. Vriend

Abstract

1. Introduction In this paper we interlink a dynamic programming, a game theory and a behavioral simulation approach to the same problem of economic exchange. We argue that the success of mathematical economics and game theory in the study of the stationary state of a population of microeconomic decision makers has helped to create an unreasonable faith that many economists have placed in models of "rational behavior". The size and complexity of the strategy sets for even a simple infinite horizon exchange economy are so overwhelmingly large that it is reasonably clear that individuals do not indulge in exhaustive search over even a large subset of the potential strategies. Furthermore unless one restricts the unadorned definition of a noncooperative equilibrium to a special form such as a perfect noncooperative equilibrium, almost any outcome can be enforced as an equilibrium by a sufficiently ingenious selection of strategies. In essence, almost anything goes, unless the concept of what constitutes a satisfactory solution to the game places limits on permitted or expected behavior.

Suggested Citation

  • Martin Shubik & Nicolaas J. Vriend, 1999. "A Behavioral Approach to a Strategic Market Game," Research in Economics 99-01-003e, Santa Fe Institute.
  • Handle: RePEc:wop:safire:99-01-003e
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    References listed on IDEAS

    as
    1. Karatzas, Ioannis & Shubik, Martin & Sudderth, William D., 1997. "A strategic market game with secured lending," Journal of Mathematical Economics, Elsevier, vol. 28(2), pages 207-247, September.
    2. Ioannis Karatzas & Martin Shubik & William D. Sudderth, 1992. "Construction of Stationary Markov Equilibria in a Strategic Market Game," Cowles Foundation Discussion Papers 1033, Cowles Foundation for Research in Economics, Yale University.
    3. Hohn Miller & Martin Shubik, 1994. "Some dynamics of a strategic market game with a large number of agents," Journal of Economics, Springer, vol. 60(1), pages 1-28, February.
    4. Harald Uhlig & Martin Lettau, 1999. "Rules of Thumb versus Dynamic Programming," American Economic Review, American Economic Association, vol. 89(1), pages 148-174, March.
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    Cited by:

    1. Jamsheed Shorish, 2010. "Functional rational expectations equilibria in market games," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 43(3), pages 351-376, June.

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