Dynamic Games under Bounded Rationality

Zhao, Guo (2015): Dynamic Games under Bounded Rationality.

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) the strategy space is a chain-complete partially ordered set; (2) the response function is certain order-preserving map on strategy space; (3) the evolution of economic system can be described by the Dynamical System defined by the response function under iteration; (4) the existence of pure-strategy Nash equilibria can be guaranteed by fixed point theorems for ordered structures, rather than topological structures. This preference-response framework liberates economics from the utility concept, and constitutes a marriage of normal-form and extensive-form games.

• Item Type: MPRA Paper
• Language: English
• Keywords: Dynamic Games,Bounded Rationality,Dynamical System, fixed point theorems,chain-complete 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 Decision-Making

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