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Dynamic Games under Bounded Rationality

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  • Zhao, Guo

Abstract

I propose a dynamic game model that is consistent with the paradigm of bounded rationality. Its main advantages over the traditional approach based on perfect rationality are that: (1) the strategy space is a chain-complete partially ordered set; (2) the response function is certain order-preserving map on strategy space; (3) the evolution of economic system can be described by the Dynamical System defined by the response function under iteration; (4) the existence of pure-strategy Nash equilibria can be guaranteed by fixed point theorems for ordered structures, rather than topological structures. This preference-response framework liberates economics from the utility concept, and constitutes a marriage of normal-form and extensive-form games.

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  • Zhao, Guo, 2015. "Dynamic Games under Bounded Rationality," MPRA Paper 62688, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62688
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic Games; Bounded Rationality; Dynamical System; fixed point theorems; chain-complete partially ordered set; Coase theorem; impossibility theorem; Keynesian beauty contest; Bertrand Paradox; backward induction paradox;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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