Limited rationality and the strategic environment: Further theory and experimental evidence

Kristen B. Cooper, Henry S. Schneider and Michael Waldman

Games and Economic Behavior, 2017, vol. 106, issue C, 188-208

Abstract: The psychology and behavioral economics literatures show that real world decision making at the individual level is frequently inconsistent with the rational actor model. An important question is therefore the extent to which a proportion of agents who make mistakes affects market level outcomes. Previous theoretical and experimental research showed that market level outcomes are less likely to match the rational actor model in settings characterized by strategic complementarity and more likely in settings characterized by strategic substitutability. We extend this research both theoretically and experimentally by introducing important real world complications – specifically, periodic shocks to the payoff structure and a periodic inflow of inexperienced players. We find that these complications can significantly slow convergence to rational actor equilibrium play, possibly even indefinitely.

Keywords: Limited rationality; Strategic complements and substitutes; Beauty contest; Convergence to equilibrium; Theory; Experiment (search for similar items in EconPapers)
JEL-codes: D01 D83 D90 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:106:y:2017:i:c:p:188-208

DOI: 10.1016/j.geb.2017.09.014

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