Bounded rationality and small worlds

Simon Grant and John Quiggin

No WPR08_2, Risk & Uncertainty Working Papers from Risk and Sustainable Management Group, University of Queensland

Abstract: We consider conditions under which the representation of the world available to a boundedly rational decision-maker, whose awareness in- creases over time, constitutes an adequate `small world' (in the sense of Savage 1954) for the assessment of a given decision. Equivalently, we consider whether boundedly rational decision-makers who gradu- ally become aware of all relevant contingencies, can pursue a strategy that is sequentially consistent. We derive conditions on beliefs and preferences that yield a separation between the set of propositions of which the boundedly rational decision-maker is aware and those of which she is unaware and show that these conditions are sufficient to ensure sequential consistency.

JEL-codes: D80 D82 (search for similar items in EconPapers)
Date: 2008-06
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Citations: View citations in EconPapers (5)

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Working Paper: Bounded Rationality and Small Worlds (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:rsm:riskun:r08_2

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