Zhao, Guo (2015): Dynamic Games under Bounded Rationality.
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Abstract
I propose a dynamic game model that is consistent with the paradigm of bounded rationality. Its main advantages over the traditional approach based on perfect rationality are that: (1) under given state the strategy space is a chaincomplete partially ordered set; (2) the response function satisfies certain ordertheoretic property; (3) the evolution of economic system is described by the Dynamical System defined by iterations of the response function; (4) the existence of equilibrium is guaranteed by fixed point theorems for ordered structures. If the preference happens to be represented by a utility function and the response was derived from utility maximization, then the equilibrium defined by fixed points of the response function will be the same as Nash equilibrium. This preferenceresponse framework liberates economics from the utility concept, and constitutes a synthesis between normalform and extensiveform games. And the essential advantages of our preferenceresponse approach was secured by successfully resolving some longstanding paradoxes in classical theory, yielding straightforward ways out of the impossibility theorem of Arrow and Sen, the Keynesian beauty contest, the Bertrand Paradox, and the backward induction paradox. These applications have certain characteristics in common: they all involve important modifications in the concept of perfect rationality.
Item Type:  MPRA Paper 

Original Title:  Dynamic Games under Bounded Rationality 
English Title:  Dynamic Games under Bounded Rationality 
Language:  English 
Keywords:  Dynamic Games,Bounded Rationality,Dynamical System, fixed point theorems,chaincomplete partially ordered set,Coase theorem,impossibility theorem, Keynesian beauty contest,Bertrand Paradox, backward induction paradox 
Subjects:  C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory D  Microeconomics > D5  General Equilibrium and Disequilibrium D  Microeconomics > D7  Analysis of Collective DecisionMaking 
Item ID:  66140 
Depositing User:  Guo Zhao 
Date Deposited:  18. Aug 2015 05:37 
Last Modified:  18. Aug 2015 06:01 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/66140 
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