Bounded Rationality in a Cournot Duopoly Game

Mariano Runco ()
Additional contact information
Mariano Runco: Department of Economics, College of Public Policy and Justice, Auburn University at Montgomery. USA.

Ensayos Revista de Economia, 2015, vol. XXXIV, issue 2, 79-94

Abstract: This paper analyzes choices and welfare in a Cournot duopoly setting with linear demand using four models of bounded rationality. The models studied in this paper are Level-k, Cognitive Hierarchy, Asymmetric Quantal Response and Noisy Introspection. It is found that in the Level-k model choices, profits and welfare alternate around the Nash Equilibrium levels depending on whether the level is odd or even. In the Cognitive Hierarchy model the choices of the first two types (L-0 and L-1) coincide with the choices in the Level-k model, a L-2 produces a smaller quantity while the quantity of a L-3 is higher or lower depending on the value of a particular parameter in the model. Both in the Asymmetric Quantal Response and Noisy Introspection models we find that choices are spread around the Nash Equilibrium level for all parameter values and thus welfare is below the Nash Equilibrium benchmark. We also use parameter estimates from other well-known experiments to obtain an approximation to empirically plausible welfare levels.

Keywords: Cournot Game; Bounded Rationality; Level-k Model; Asymmetric Quantal Response Equilibrium; Noisy Introspection; Cognitive Hierarchy (search for similar items in EconPapers)
JEL-codes: C72 D21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.economia.uanl.mx/revistaensayos/xxxiv/2 ... not_duopoly_game.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ere:journl:v:xxxiv:y:2015:i:2:p:79-94

Ordering information: This journal article can be ordered from

Access Statistics for this article

Ensayos Revista de Economia is currently edited by Edgar Mauricio Luna Domínguez

More articles in Ensayos Revista de Economia from Universidad Autonoma de Nuevo Leon, Facultad de Economia Avenida Lazaro Cardenas 4600 Ote., Fraccionamiento Residencial Las Torres, C.P. 64930. Monterrey, Nuevo Leon. México.. Contact information at EDIRC.
Bibliographic data for series maintained by Dora María Vega Facio ( this e-mail address is bad, please contact ).