A Noisy Model of Individual Behaviour

Suren Basov

No 791, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: This paper develops a model of individual adjustment subject to mistakes. In this case when mistakes are assumed i.i.d., this process produces a probability distribution of agents decision whose evolution is determined by Fokker-Planck equation. This distribution converges to the unique, globally stable stationary distribution. In the case when choice space is one dimensional this distribution satisfies Independence of Irrelevant Alternatives (IIA) property. In multidimensional case for IIA to hold strong additional conditions on payoff function or error structure should be satisfied. The paper also considers generalization of model for autocorrelated errors in one-dimensional case.

Keywords: WAGES; DISTRIBUTION; BEHAVIOUR (search for similar items in EconPapers)
JEL-codes: C0 D0 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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