Can Game Theory deal with Bounded Rationality?

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Can Game Theory deal with Bounded Rationality?

A key assumption of Game Theory, as mentioned in the article, is rationality. In reality of course individuals and companies may differ from each other in terms of how effectively they can observe a situation, analyze it, plan a strategy and execute their strategy. Their rationality is bounded.
(How) can Game Theory deal with Bounded Rationality?

  Jaap de Jonge
Editor, Netherlands
 

Regular Game Theory Has Difficulty to Deal with Bounded Rationality

Indeed game theory usually starts with rather strong premises. Preferences are represented by utilities, beliefs are represented by probabilities and common knowledge and symmetric rationality as background assumptions are treated as “given.”
Unfortunately, this is empirically not the situation we face in managing organizations and in society in general.
Subjective games are meant to accommodate such irrationality.

 

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