Bounded Rationality in Economics: A Game Theorist's View

Hitoshi Matsushima

No 97-F-10, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: In this paper, we will argue that it is essential to incorporate bounded rationality into game theory. Game theory has been applied to economics such as industrial organization on the basis of the naïve interpretation of game theory, which requires players to be ideally rational in an extremely unrealistic way. We will stress the importance of establishing the perceptive interpretation of game theory by taking boundedly rational players' inductive reasoning processes into account. We will explain my recent work, Matsushima(1997), which shows that the subjective games perceived by players in the long run are entirely different from the true objective game, and are trivial games in the sense that there exists a strictly dominant and subjectively Pareto-efficient strategy profile.

Pages: 20 pages
Date: 1997-02
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Citations: View citations in EconPapers (1)

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Journal Article: Bounded Rationality in Economics: A Game Theorist's View (1997)
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