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Pareto-Optimal Matching Allocation Mechanisms for Boundedly Rational Agents

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  • Sophie Bade

    (Max Planck Institute for Research on Collective Goods, Bonn)

Abstract

This article is concerned with the welfare properties of trade when the behavior of agents cannot be rationalized by preferences. I investigate this question in an environment of matching allocation problems. There are two reasons for doing so: rstly, the niteness of such problems entails that the domain of the agents' choice behavior does not need to be restricted in any which way to obtain results on the welfare properties of trade. Secondly, some matching allocation mechanisms have been designed for non-market environments in which we would typically expect boundedly rational behavior. I nd quali ed support for the statements that all outcomes of trade are Pareto-optimal and all Pareto optima are reachable through trade. Contrary to the standard case, di erent trading mechanisms lead to di erent outcome sets when the agents' behavior is not rationalizable. These results remain valid when restricting attention to \minimally irrational" behavior.

Suggested Citation

  • Sophie Bade, 2010. "Pareto-Optimal Matching Allocation Mechanisms for Boundedly Rational Agents," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_47, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2010_47
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    File URL: http://www.coll.mpg.de/pdf_dat/2010_47online.pdf
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    References listed on IDEAS

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    1. Mandler, Michael, 2014. "Indecisiveness in behavioral welfare economics," Journal of Economic Behavior & Organization, Elsevier, vol. 97(C), pages 219-235.
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    More about this item

    Keywords

    Bounded Rationality; House Allocation Problems; Fundamental Theorems of Welfare; Multiple Rationales;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D60 - Microeconomics - - Welfare Economics - - - General

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