Rationality and Bounded Rationality

Robert J. Aumann

A survey of bounded rationality models and ideas in Game Theory. Topics covered include: The evolutionary approach to optimization -- and specifically to game theory -- and its implications for the idea of bounded rationality; evolutionary dynamics; "rule rationality" as opposed to "act rationality"; "trembles" and refinements in general; "crazy" perturbations; failure of common knowledge of rationality; limiting average payoff in infinitelyrepeated games; epsilon equilibria; players modeled as computers, finite state automata, or Turing machines; paradoxes (such as Ellsberg or Allais); laboratory experiments; and finally, an open problem.

May, 1995
Published in: 
In S. Hart & A. Mas-Colell (eds.) Cooperation: Game Theoretic Approaches. Berlin: Springer (1997) 219-232; also in Frontiers of Research in Economic Theory, The Nancy L. Schwartz Memorial Lectures, 1983-1997