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Natural Rationality

  • V. M. Darley
  • S. A. Kauffman
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    We propose a method for modelling economic systems in which outcomes depend locally on the predictions that agents make of other agents. We develop populations games in which each agent adaptively searches for a good model of its environment. We demonstrate that such systems can exhibit persistent dynamics, cyclic oscillations between low and high complexity states, and other complex, yet endogenous, phenomena. We propose that these `adaptively rational' agents as a natural extension of rational expectations, suitable when mutual consistency is not realistic. We discuss the connections between our work and the programs of bounded rationality, evolutionary game theory, and models motivated by statistical mechanics.

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    Paper provided by Santa Fe Institute in its series Working Papers with number 96-08-071.

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    Date of creation: Aug 1996
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    Handle: RePEc:wop:safiwp:96-08-071
    Contact details of provider: Postal: 1399 Hyde Park Road, Santa Fe, New Mexico 87501
    Web page: http://www.santafe.edu/sfi/publications/working-papers.html

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    1. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July.
    2. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
    3. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
    4. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-93, May.
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