[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/a/eee/jetheo/v158y2015ipap232-258.html
   My bibliography  Save this article

Dynamic choice in a complex world

Author

Listed:
  • Agastya, Murali
  • Slinko, Arkadii
Abstract
We consider an environment in which a Decision Maker (DM) finds it sufficiently complex to even describe the state space, let alone guess the parameters of the underlying data generating process. He is therefore unable to use the standard Bayesian methods. Instead, at each moment in time, the DM constructs a preference relation on the set of available actions based on their past performance. We postulate a set of axioms on this family of preference relations indexed by histories (of rewards). Two key conditions, a typical Exchangeability axiom and another labeled Consistency, that constraints the DM not to update her preferences after certain events (loosely based the “the principle of insufficient reason”), characterize thumb rules for ranking actions that are akin to the familiar fictitious play in game theory. Moreover, if in fact the stochastic process that generates the rewards is exchangeable, a DM that obeys our axioms (almost surely) cannot be distinguished in the long run from one that is fully cognizant of the environment and satisfies the expected utility hypothesis. The main result requires proving a representation result on multisets which may be of independent interest.

Suggested Citation

  • Agastya, Murali & Slinko, Arkadii, 2015. "Dynamic choice in a complex world," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 232-258.
  • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pa:p:232-258
    DOI: 10.1016/j.jet.2015.04.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022053115000599
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jet.2015.04.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Itzhak Gilboa & David Schmeidler, 2003. "Inductive Inference: An Axiomatic Approach," Econometrica, Econometric Society, vol. 71(1), pages 1-26, January.
    2. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
    3. Murat Sertel & Arkadii Slinko, 2007. "Ranking Committees, Income Streams or Multisets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 30(2), pages 289-289, February.
    4. Itzhak Gilboa & David Schmeidler, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 605-639.
    5. Tilman Börgers & Antonio J. Morales & Rajiv Sarin, 2004. "Expedient and Monotone Learning Rules," Econometrica, Econometric Society, vol. 72(2), pages 383-405, March.
    6. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January.
    7. Easley, David & Rustichini, Aldo, 2005. "Optimal guessing: Choice in complex environments," Journal of Economic Theory, Elsevier, vol. 124(1), pages 1-21, September.
    8. Blume, Lawrence & Easley, David & Halpern, Joseph Y., 2021. "Constructive decision theory," Journal of Economic Theory, Elsevier, vol. 196(C).
    9. Mengel Friederike & Rivas Javier, 2012. "An Axiomatization of Learning Rules when Counterfactuals are not Observed," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-19, July.
    10. Robert J. Aumann & Jacques H. Dreze, 2008. "Rational Expectations in Games," American Economic Review, American Economic Association, vol. 98(1), pages 72-86, March.
    11. Karni, Edi, 2006. "Subjective expected utility theory without states of the world," Journal of Mathematical Economics, Elsevier, vol. 42(3), pages 325-342, June.
    12. Gilboa,Itzhak & Schmeidler,David, 2001. "A Theory of Case-Based Decisions," Cambridge Books, Cambridge University Press, number 9780521802345, October.
    13. David Easley & Aldo Rustichini, 1999. "Choice without Beliefs," Econometrica, Econometric Society, vol. 67(5), pages 1157-1184, September.
    14. Dekel, Eddie & Lipman, Barton L & Rustichini, Aldo, 2001. "Representing Preferences with a Unique Subjective State Space," Econometrica, Econometric Society, vol. 69(4), pages 891-934, July.
    15. Drew Fudenberg & David K. Levine, 1998. "The Theory of Learning in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061945, April.
    16. Daniel Ellsberg, 1961. "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 75(4), pages 643-669.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Panagiotis Andrikopoulos & Nick Webber, 2019. "Understanding time-inconsistent heterogeneous preferences in economics and finance: a practice theory approach," Annals of Operations Research, Springer, vol. 282(1), pages 3-26, November.
    2. Oyarzun, Carlos & Sanjurjo, Adam & Nguyen, Hien, 2017. "Response functions," European Economic Review, Elsevier, vol. 98(C), pages 1-31.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Flores-Szwagrzak, Karol, 2022. "Learning by Convex Combination," Working Papers 16-2022, Copenhagen Business School, Department of Economics.
    2. Oyarzun, Carlos & Sarin, Rajiv, 2013. "Learning and risk aversion," Journal of Economic Theory, Elsevier, vol. 148(1), pages 196-225.
    3. Alessandro Lizzeri & Marciano Siniscalchi, 2008. "Parental Guidance and Supervised Learning," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 1161-1195.
    4. Daron Acemoglu & Asuman Ozdaglar, 2011. "Opinion Dynamics and Learning in Social Networks," Dynamic Games and Applications, Springer, vol. 1(1), pages 3-49, March.
    5. Gary Charness & Dan Levin, 2003. "Bayesian Updating vs. Reinforcement and Affect: A Laboratory Study," Levine's Bibliography 666156000000000180, UCLA Department of Economics.
    6. Drew Fudenberg, 2006. "Advancing Beyond Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 694-711, September.
    7. Gary Charness & Dan Levin, 2005. "When Optimal Choices Feel Wrong: A Laboratory Study of Bayesian Updating, Complexity, and Affect," American Economic Review, American Economic Association, vol. 95(4), pages 1300-1309, September.
    8. Jehiel, Philippe & Singh, Juni, 2021. "Multi-state choices with aggregate feedback on unfamiliar alternatives," Games and Economic Behavior, Elsevier, vol. 130(C), pages 1-24.
    9. Antonio J. Morales Siles, 2002. "Absolute Expediency and Imitative Behaviour," Economic Working Papers at Centro de Estudios Andaluces E2002/03, Centro de Estudios Andaluces.
    10. Bleile, Jörg, 2016. "Cautious Belief Formation," Center for Mathematical Economics Working Papers 507, Center for Mathematical Economics, Bielefeld University.
    11. Gilboa, Itzhak & Samuelson, Larry & Schmeidler, David, 2013. "Dynamics of inductive inference in a unified framework," Journal of Economic Theory, Elsevier, vol. 148(4), pages 1399-1432.
    12. Waters, George A., 2009. "Chaos in the cobweb model with a new learning dynamic," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1201-1216, June.
    13. Friederike Mengel & Emanuela Sciubba, 2010. "Extrapolation in Games of Coordination and Dominance Solvable Games," Working Papers 2010.148, Fondazione Eni Enrico Mattei.
    14. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2012. "On the Definition of Objective Probabilities by Empirical Similarity," World Scientific Book Chapters, in: Case-Based Predictions An Axiomatic Approach to Prediction, Classification and Statistical Learning, chapter 11, pages 259-280, World Scientific Publishing Co. Pte. Ltd..
    15. Sandholm,W.H., 2003. "Excess payoff dynamics, potential dynamics, and stable games," Working papers 5, Wisconsin Madison - Social Systems.
    16. Sarin, Rajiv, 1999. "Simple play in the Prisoner's Dilemma," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 105-113, September.
    17. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    18. Michel BenaÔm & J–rgen W. Weibull, 2003. "Deterministic Approximation of Stochastic Evolution in Games," Econometrica, Econometric Society, vol. 71(3), pages 873-903, May.
    19. Mari Rege, 2000. "Networking Strategy: Cooperate Today in Order to Meet a Cooperator Tomorrow," Discussion Papers 282, Statistics Norway, Research Department.
    20. Mohlin, Erik & Östling, Robert & Wang, Joseph Tao-yi, 2020. "Learning by similarity-weighted imitation in winner-takes-all games," Games and Economic Behavior, Elsevier, vol. 120(C), pages 225-245.

    More about this item

    Keywords

    Bounded rationality; Learning; Multisets; Generalized fictitious play property; Non-Bayesian;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jetheo:v:158:y:2015:i:pa:p:232-258. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622869 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.