Bounded Rationality and Correlated Equilibria

Peio Zuazo-Garin and Fabrizio Germano

No 812, Working Papers from Barcelona School of Economics

Abstract: We study an interactive framework that explicitly allows for non-rational behavior. We do not place any restrictions on how players can deviate from rational behavior. Instead we assume that there exists a lower bound p 2 [0; 1] such that all players play and are believed to play rationally with a probability p or more. This, together with the assumption of a common prior, leads to what we call the set of p-rational outcomes, which we define and characterize for arbitrary p 2 [0; 1]. We then show that this set varies continuously in p and converges to the set of correlated equilibria as p approaches 1, thus establishing robustness of the correlated equilibrium concept to relaxing rationality and common knowledge of rationality. The p-rational outcomes are easy to compute, also for games of incomplete information, and they can be applied to observed frequencies of play to compute a measure p that bounds from below the probability with which any given player is choosing actions consistent with payoff maximization and common knowledge of payoff maximization.

Keywords: experiments; Incomplete Information; correlated equilibrium; strategic interaction; robustness to bounded rationality; approximate knowledge; measure of rationality (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2015-09
New Economics Papers: this item is included in nep-gth and nep-hpe
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Related works:
Journal Article: Bounded rationality and correlated equilibria (2017)
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
Working Paper: Bounded rationality and correlated equilibria (2015)
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
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