Tesfatsion, Leigh

Theory and Decision Vol. 17 (1984): 149-175.

abstracted in Zentralblatt fur Mathematik, August 1985, p. 410 This article presents a generalization of the standard N-person game with flexible information requirements suitable for players constrained by certain types of bounded rationality. In particular, strategies (complete contingency plans) are replaced with partial contingency plans augmented by goals. Both utility and probability are conditioned on selected goals and actions (g,a), and both are defined over the same set of possible (g,a)-conditioned events. Well-known existence theorems for Nash equilibria and Nash bargaining solutions are extended to this context. For adaptive sequential games, the symmetrical treatment of payoffs and probability assessments permits players to learn their successive moves via "criterion filtering." That is, the expected utility criterion function of each player can be directly updated in each decision period using transitional utility assessments in a manner analogous to Bayes' rule for updating probability distributions using transitional probability assessments. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/cfhome.htm

JEL Classification: C6, C7

Keywords: Bounded rationality, N-person game, goals, criterion filtering