The paper reports results on the effects of stylized stabilization policies on endogenously created fluctuations. A simple monetary model with intertemporally optimizing agents is considered. Fluctuations in output may occur due to fluctuations in labor supply which are again caused by volatile...

By identifying types whose low-order beliefs – up to level li – about the state of nature coincide, we obtain quotient type spaces that are typically smaller than the original ones, preserve basic topological properties, and allow standard equilibrium analysis even under bounded reasoning....

We propose a rule of decision-making, the sequential procedure guided by routes, and show that three influential boundedly rational choice models can be equivalently understood as special cases of this rule. In addition, the sequential procedure guided by routes is instrumental in showing that...

We extend Aumann's [3] theorem, deriving correlated equilibria as a consequence of common priors and common knowledge of rationality, by explicitly allowing for non-rational behavior. We replace the assumption of common knowledge of rationality with a substantially weaker one, joint p-belief of...

This paper is concerned with the realism of mechanisms that implement social choice functions in the traditional sense. Will agents actually play the equilibrium assumed by the analysis? As an example, we study the convergence and stability properties of Sj\"ostr\"om's (1994) mechanism, on the...

The evolution of boundedly rational rules for playing normal form games is studied within stationary environments of stochastically changing games. Rules are viewed as algorithms prescribing strategies for the different normal form games that arise. It is shown that many of the folk results of...

When can a single variable be more accurate in binary choice than multiple sources of information? We derive analytically the probability that a single variable (SV) will correctly predict one of two choices when both criterion and predictor are continuous variables. We further provide analogous...

An important problem in descriptive and prescriptive research in decision making is to identify “regions of rationality,” i.e., the areas for which heuristics are and are not effective. To map the contours of such regions, we derive probabilities that heuristics identify the best of m...

This paper studies the equilibrating process of several implementation mechanisms using naive adaptive dynamics. We show that the dynamics converge and are stable, for the canonical mechanism of implementation in Nash equilibrium. In this way we cast some doubt on the criticism of ``complexity''...

Many experiments have shown that human subjects do not necessarily behave in line with game theoretic assumptions and solution concepts. The reasons for this non-conformity are multiple. In this paper we study the argument whether a deviation from game theory is because subjects are rational,...