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Does bounded rationality lead to individual heterogeneity? The impact of the experimentation process and of memory constraints

AuthorsCasari, Marco
KeywordsBounded rationality
Genetic algorithms
Individual heterogeneity
Issue Date29-Mar-2003
SeriesUFAE and IAE Working Papers
AbstractIn this paper we explore the effect of bounded rationality on the convergence of individual behavior toward equilibrium. In the context of a Cournot game with a unique and symmetric Nash equilibrium, firms are modeled as adaptive economic agents through a genetic algorithm. Computational experiments show that (1) there is remarkable heterogeneity across identical but boundedly rational agents; (2) such individual heterogeneity is not simply a consequence of the random elements contained in the genetic algorithm; (3) the more rational agents are in terms of memory abilities and pre-play evaluation of strategies, the less heterogeneous they are in their actions. At the limit case of full rationality, the outcome converges to the standard result of uniform individual behavior.
Appears in Collections:(IAE) Informes y documentos de trabajo
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