Bounded rationality and correlated equilibria

Fabrizio Germano and Peio Zuazo-Garin

International Journal of Game Theory, 2017, vol. 46, issue 3, No 1, 595-629

Abstract: Abstract We study an interactive framework that explicitly allows for nonrational behavior. We do not place any restrictions on how players’ behavior deviates from rationality, but rather, on players’ higher-order beliefs about the frequency of such deviations. We assume that there exists a probability p such that all players believe, with at least probability p, that their opponents play rationally. 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 probability p. 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. Importantly, they can be applied to observed frequencies of play for arbitrary normal-form games to derive a measure of rationality $$\overline{p}$$ p ¯ that bounds from below the probability with which any given player chooses actions consistent with payoff maximization and common knowledge of payoff maximization.

Keywords: Strategic interaction; Correlated equilibrium; Robustness to bounded rationality; Approximate knowledge; Incomplete information; Measure of rationality; Experiments (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s00182-016-0547-5 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
Working Paper: Bounded Rationality and Correlated Equilibria (2015)
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:spr:jogath:v:46:y:2017:i:3:d:10.1007_s00182-016-0547-5

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/182/PS2

DOI: 10.1007/s00182-016-0547-5

Access Statistics for this article

International Journal of Game Theory is currently edited by Shmuel Zamir, Vijay Krishna and Bernhard von Stengel

More articles in International Journal of Game Theory from Springer, Game Theory Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().