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Please use this identifier to cite or link to this item: http://hdl.handle.net/10481/31567

Title: Bounded rationality
Authors: Ballester, Coralio
Hernández, Penélope
Issue Date: 2010
Abstract: The observation of the actual behavior by economic decision makers in the lab and in the field justifies that bounded rationality has been a generally accepted assumption in many socio-economic models. The goal of this paper is to illustrate the difficulties involved in providing a correct definition of what a rational (or irrational) agent is. In this paper we describe two frameworks that employ different approaches for analyzing bounded rationality. The first is a spatial segregation set-up that encompasses two optimization methodologies: backward induction and forward induction. The main result is that, even under the same state of knowledge, rational and non-rational agents may match their actions. The second framework elaborates on the relationship between irrationality and informational restrictions. We use the beauty contest (Nagel, 1995) as a device to explain this relationship.
Publisher: Universidad de Granada. Departamento de Teoría e Historia Económica
Series/Report no.: The Papers;10/10
Keywords: Bounded rationality
Behavior
Schelling's segregation model
Information
URI: http://hdl.handle.net/10481/31567
Rights : Creative Commons Attribution-NonCommercial-NoDerivs 3.0 License
Citation: Ballester, C.; Hernández, P. Bounded rationality. Universidad de Granada. Departamento de Teoría e Historia Económica (2010). (The Papers; 10/10). [http://hdl.handle.net/10481/31567]
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