Related papers: Bubbles are rational
As we show by using notions of equilibrium in infinite sequential games, crashes or financial escalations are rational for economic or environmental agents, who have a vision of an infinite world. This contradicts a picture of a…
The aim of this of this paper is to study infinite games and to prove formally some properties in this framework. As a consequence we show that the behavior (the madness) of people which leads to speculative crashes or escalation can be…
Game theoretic equilibria are mathematical expressions of rationality. Rational agents are used to model not only humans and their software representatives, but also organisms, populations, species and genes, interacting with each other and…
Escalation is the fact that in a game (for instance an auction), the agents play forever. It is not necessary to consider complex examples to establish its rationality. In particular, the $0,1$-game is an extremely simple infinite game in…
Escalation is a typical feature of infinite games. Therefore tools conceived for studying infinite mathematical structures, namely those deriving from coinduction are essential. Here we use coinduction, or backward coinduction (to show its…
Escalation is a typical feature of infinite games. Therefore tools conceived for studying infinite mathematical structures, namely those deriving from coinduction are essential. Here we use coinduction, or backward coinduction (to show its…
This paper develops a dynamic equilibrium model where agents exhibit a strong form of belief heterogeneity: they disagree about zero probability events. It is shown that, somewhat surprisingly, equilibrium exists in this setting, and that…
A rational bubble is a situation in which the asset price exceeds its fundamental value defined by the present discounted value of dividends in a rational equilibrium model. We discuss the recent development of the theory of rational…
Escalation in games is when agents keep playing forever. Based on formal proofs we claim that if agents assume that resource are infinite, escalation is rational.
In a satisficing equilibrium each agent $i$ plays one of her top $k_i$ actions in response to the actions of the other agents. Our concept unifies models of bounded rationality and yields predictions that differ from canonical solution…
Escalation is the fact that in a game (for instance in an auction), the agents play forever. The $0,1$-game is an extremely simple infinite game with intelligent agents in which escalation arises. It shows at the light of research on…
Optimizing strategic decisions (a.k.a. computing equilibrium) is key to the success of many non-cooperative multi-agent applications. However, in many real-world situations, we may face the exact opposite of this game-theoretic problem --…
"Rational bubble", as introduced by the famous paper on money by Samuelson (1958), means speculation backed by nothing. The large subsequent rational bubble literature has identified attaching bubbles to dividend-paying assets in a natural…
The dominant theories of rational choice assume logical omniscience. That is, they assume that when facing a decision problem, an agent can perform all relevant computations and determine the truth value of all relevant logical/mathematical…
This article provides a self-contained overview of the theory of rational asset price bubbles. We cover topics from basic definitions, properties, and classical results to frontier research, with an emphasis on bubbles attached to real…
We examine sequential equilibrium in the context of computational games, where agents are charged for computation. In such games, an agent can rationally choose to forget, so issues of imperfect recall arise. In this setting, we consider…
Rationality has been an intriguing topic for several decades. Even the scope of definition of rationality across different subjects varies. Several theories (e.g., game theory) initially evolved on the basis that agents (e.g., humans) are…
Consider a game where Alice generates an integer and Bob wins if he can factor that integer. Traditional game theory tells us that Bob will always win this game even though in practice Alice will win given our usual assumptions about the…
A general theory of innovation and progress in human society is outlined, based on the combat between two opposite forces (conservatism/inertia and speculative herding "bubble" behavior). We contend that human affairs are characterized by…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…