Bounded Computational Capacity Equilibrium

Eilon Solan () and Penelope Hernandez ()

No 314, Discussion Papers in Economic Behaviour from University of Valencia, ERI-CES

Abstract: A celebrated result of Abreu and Rubinstein [1] states that in repeated games, when the players are restricted to playing strategies that can be im- plemented by fnite automata and they have lexicographic preferences, the set of equilibrium payoffs is a strict subset of the set of feasible and individually rational payoffs. In this paper we explore the limitations of this result. We prove that if memory size is costly and players can use mixed automata, then a folk theorem obtains and the set of equilibrium payo is once again the set of feasible and individually rational payoffs. Our result emphasizes the role of memory cost and of mixing when players have bounded computational power

Keywords: Bounded rationality; automata; complexity; infnitely repeated games; equilibrium. (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-evo and nep-mic
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Journal Article: Bounded computational capacity equilibrium (2016)
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