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Bounded rationality and correlated equilibria

Fabrizio Germano () and Peio Zuazo-Garin ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We study an interactive framework that explicitly allows for non-rational behavior. We do not place any restrictions on how players can deviate from rational behavior. Instead we assume that there exists a lower bound p E [0,1] such that all players play and are believed to play rationally with a probability p or more. 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 p E [0,1]. 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, and they can be applied to observed frequencies of play to compute a measure p that bounds from below the probability with which any given player is choosing 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)
New Economics Papers: this item is included in nep-evo, nep-gth and nep-mic
Date: 2015-02
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Related works:
Journal Article: Bounded rationality and correlated equilibria (2017) Downloads
Working Paper: Bounded Rationality and Correlated Equilibria (2015) Downloads
Working Paper: Bounded Rationality and Correlated Equilibria (2015) Downloads
Working Paper: Bounded Rationality and Correlated Equilibria (2015) Downloads
Working Paper: Bounded Rationality and Correlated Equilibria (2015) Downloads
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