The introduction of a small amount of bounded rationality into a model sometimes has little effect, and sometimes has a dramatic impact on predicted behavior. We call a model robust to bounded rationality if small deviations from rationality result only in small changes in the equilibrium set. We also say that a model is structurally stable if the equilibrium set (given fully rational agents) v...

The concept of bounded rationality is not well-defined. Several aspects of bounded rationality are discussed. Two different kinds of bounded rationality are distinguished. First, rationality may be bounded in the sense that the player cannot perform all the necessary calculations within the time frame of the game. This applies not only to numerical calculations but also to any kind of informati...

Models in the classical theory of games and in neoclassical economics normally assume rationality in the sense that agents have compete and transitive preferences. The paper labels this fundamental rationality and distinguishs two other sorts of rationality pertinent to the study of strategic interaction: individual economic rationality (IER) and effective rationality. IER is, we observe, chara...

I took the title of this chapter from an email Herbert A. Simon sent me in May 1999. In this email, he wrote a statement for the back cover of Simple Heuristics That Make Us Smart in which he commented: “I think the book strikes a great blow for sanity in the approach to rationality [and shows] why more than minor tampering with existing optimization theory is called for.” But Herb wouldn’t be ...

Many multicriteria problems in economics and finance require that efficient solutions be found. A recent contribution to production theory established a characterization of efficient points under closedness and free-disposability (Bonnisseau and Crettez in Econ Theory 31(2):213–223, 2007, Theorem 1). However, as will be shown using a number of examples, these results cannot be applied to simple...

This paper is about dotted representations of efficient frontiers. Dotted representations, as in portfolio selection, can often be the most practical way of communicating an efficient frontier. The most popular method is to minimize variance subject to fixed levels of expected ∗Corresponding author [email protected]