Questions tagged [bounded-rationality]

Analysis in which the ability of agents act rationally is constrained in one or more respects. Commonly employed in behavioural economics.

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Can you please help me find this topic in Mechanism design/Rational choice theory?

When I was in university, I remember studying some kind of topic in adv microeconomics where someone gives you three options, where one is obviously worse and is put there just to deceive you so that ...
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What is steady state learning in the context of boundedly rational expectation modeling and how does it differ with other theories of learning?

What is steady state learning in the context of boundedly rational expectation modeling? E.g. see Evans et al. (2009) They define it as: "Under steady-state learning, agents use past data to ...
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Does a monopolistically competitive market outcome involves assuming rational expectations?

E.g. When Grazzini et al. (2014) discuss a "monopolistically competitive outcome" (MC) in their paper ($2.1), which is based on Dixit-Stiglitz's model, 1977, does this outcome involve assuming ...
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Are heterogenous expectations models still determinate, closed models?

Cars Hommes proposed many models based on agents having heterogeneous expectations. Agents switch between a fixed set of prediction rules depending on their forecast error history. However, it seems ...
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Does the law of motion remain constant in a rational expectation model? Does it constantly change in a boundedly rational agent framework?

Is the following true? The rational expectations hypothesis also implicitly assumes that the law of motion of the economy does not change, which actually is a self-fulfilling assumption as long as ...
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Why does a model that is used for policy analysis needs its shocks and parameters to be structural (= invariant) to the shock under consideration?

In their paper, " New Keynesian Models: Not Yet Useful for Policy Analysis" V. V. Chari, Patrick J. Kehoe, and Ellen R. McGrattan argue that one needs a structural model in order to analyse the ...
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Inertia and rational expectations DSGE models

What types of inertia or other phenomena in the data are hard to model with New Keynesian or other DSGE models assuming rational expectations?
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What is the difference between a perfect foresight equilibrium and a rational expections equilibrium?

What is the difference between a perfect foresight equilibrium and a rational expections equilibrium? Why is it the same in case of a non-stochastic model? Can there be a perfect foresight ...
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Expectational stability: adaptive learning of RE equilibria in dynamic systems

There are two steps in the explanation of the expectational stability concept by Evans and Honkapohja (2001) (see below) that I don't understand. Step 1. What does this formula below mean, ...
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Why don't more people use adblockers?

Economists are fond of posing "puzzles", for example the "annuity puzzle" (why don't more people buy annuities). I wonder if any economists (or other social scientists) have, in similar spirit, ...
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Difference between equilibrium and k-rationalizability

I'm reading a Structural Models of Nonequilibrium Strategic Thinking: Theory, Evidence, and Applications by Crawford, Costa-Gomes and Iriberri. They write the following: In two-person games, a ...
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Sunk cost fallacy- is it a bug or a feature?

I was having a conversation with a colleague regarding sunk costs, and discussion came up that the appeal of falling for the sunk cost fallacy might be a feature rather than a flaw, as it is behavior ...
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Do people really care about higher moments?

I have heard that people often handle uncertainty using point estimates not probability distributions. However, I have been unable to find any evidence for this in the heuristics and biases literature....
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Luce Choice Axiom, Quantal Response Equilibrium

How is the Quantal response equilibrium model influenced by the Luce choice axiom since Quantal Response equilibrium takes into account the rationality parameter ß and I dont see the mention of ...
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Bounded rationality with Quantal Response Equilibrium model for an Extensive Form game

I am working on my Master thesis based on bounded rationality in behavioral game theory models, I wanted to know if QRE(Quantal Response Equilibrium) can be applied to games where players have ...
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Was there resistance, historically, to the idea that human behavior deviates from rational decision making theory?

I have edited this question considerably to narrow the focus. A recent New York Times article was published on the Nobel Prize for Economics. The article discusses that Nobel laureate Richard Thaler ...
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Doubts in modelling the Arthur(1991) paper: Designing economic agents that act like human agent

I am implementing Arthur's paper "Designing economic agents that act like human agent: A behavioral approach to bounded rationality" from 1991 in JAVA and I am having a problem understanding one part ...
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Random Choice interpretation

Due to McFadden Economists usually interpret Random Choice, in the population sense, as each DM being drawn from the probabilistic choice rule independently and identically. However, Psychologist have ...
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Topological concepts in economic theory

QUESTION: What are the major or systematic applications of post-1960s mathematics to microeconomics? For example, in the late 19th century, Fisher first used the mathematical ideas of Gibbs to ...
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Tests of rational inattention

Can you provide a reference regarding a revealed preference test(s) of rational inattention models, as proposed by Sims, ergo, using a mutual information measure as the cost of putting attention. And ...
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What are the recent advancements in building a unified theory of bounded rationality?

It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does ...