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Naive Reinforcement Learning with Endogenous Aspirations

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  • Borgers, Tilman
  • Sarin, Rajiv

Abstract

This article considers a simple model of reinforcement learning. All behavior change derives from the reinforcing or deterring effect of instantaneous payoff experiences. Payoff experiences are reinforcing or deterring depending on whether the paxoff exceeds an aspiration level or falls short of it. Over time, the aspiration level is adjusted toward the actually experienced payoffs. This article shows that aspiration level adjustments may improve the decision maker's long-run performance by preventing him or her from feeling dissatisfied with even the best available strategies. However, such movements also lead to persistent deviations from expected payoff maximization by creating "probability matching" effects. Copyright 2000 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Borgers, Tilman & Sarin, Rajiv, 2000. "Naive Reinforcement Learning with Endogenous Aspirations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 921-950, November.
    • Handle: RePEc:ier:iecrev:v:41:y:2000:i:4:p:921-50
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    References listed on IDEAS

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    1. Karandikar, Rajeeva & Mookherjee, Dilip & Ray, Debraj & Vega-Redondo, Fernando, 1998. "Evolving Aspirations and Cooperation," Journal of Economic Theory, Elsevier, vol. 80(2), pages 292-331, June.
    2. Gilboa, Itzhak & Schmeidler, David, 1996. "Case-Based Optimization," Games and Economic Behavior, Elsevier, vol. 15(1), pages 1-26, July.
    3. Bendor, J. & Mookherjee, D. & Ray, D., 1994. "Aspirations, adaptive learning and cooperation in repeated games," Discussion Paper 1994-42, Tilburg University, Center for Economic Research.
    4. Roth, Alvin E. & Erev, Ido, 1995. "Learning in extensive-form games: Experimental data and simple dynamic models in the intermediate term," Games and Economic Behavior, Elsevier, vol. 8(1), pages 164-212.
    5. John G. Cross, 1973. "A Stochastic Learning Model of Economic Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 87(2), pages 239-266.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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