CERGE-EI

Prof. Olivier Compte: “Plausible theories of behavior”

Prof. Olivier Compte

Paris School of Economics, France

Authors: Olivier Compte and Andrew Postlewaite

Abstract: Decision and game theoretic models generally make no restrictions on the ability of agents to compare alternatives, however large the set of alternatives is. A consequence is that players end up behaving as if they had very precise and accurate beliefs over the specific environment they are facing, however complex that environment is.

   We propose to view the ability to compare alternatives as an implicit informational assumption, and to aim for models that make plausible informational assumptions. We do that by restricting the number of alternative decision rules that agents compare.  Our approach provides a way to deal with less sophisticated agents, and as such, a tool to check whether the insights that we derive in standard models are robust to lesser sophistication. It also suggests an alternative way to model beliefs, consistent with the view that most of our beliefs are crude ones.

  Various classes of decision and strategic problems are analyzed from this perspective, including auctions, information transmission, reputation, cooperation and belief formation.

Full Text: “Plausible theories of behavior”