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Bounding Rationality by Discounting Time [article]

Lance Fortnow, Rahul Santhanam
2009 arXiv   pre-print
We define a new notion of bounded rationality, where the payoffs of players are discounted by the computation time they take to produce their actions.  ...  Namely, under a natural assumption on the discount rates, there is an equilibriumwhere Alice has a winning strategy iff there is a linear-time samplable distribution with respect to which Factoring is  ...  Our notion of discounted time has several benefits. First, it bounds rationality endogenously rather than ex-ogenously.  ... 
arXiv:0911.3162v1 fatcat:2kywohnrpre4fkq3o5yn7ew5fq

Quasi-hyperbolic discounting and social security systems

Mordechai E. Schwarz, Eytan Sheshinski
2007 European Economic Review  
Hyperbolic discounting has become a common assumption for modeling bounded rationality with respect to individual savings decisions.  ...  We show that this form of bounded rationality breaks the equivalence between funded and pay-as-you-go (PAYG) systems established in Sheshinski and Weiss [Sheshinski, E., Weiss, Y., 1981.  ...  For instance, time inconsistency reflects irrationality, or at least bounded rationality, especially in its naı¨ve version.  ... 
doi:10.1016/j.euroecorev.2006.09.004 fatcat:f7qmxvea3vgxfd5lkthcsgup3u

Performance of Bounded-Rational Agents With the Ability to Self-Modify [article]

Jakub Tětek, Marek Sklenka, Tomáš Gavenčiak
2021 arXiv   pre-print
We show that while in the cases (2)-(4) the misalignment caused by the agent's imperfection does not increase over time, with (1) the misalignment may grow exponentially.  ...  Everitt et al. (2016) formally show that providing an option to self-modify is harmless for perfectly rational agents. We show that this result is no longer true for agents with bounded rationality.  ...  We consider (bounded-rational) utility maximizers, where the policy is (partially) determined by the instantaneous utility function u, belief ρ and discount factor γ.  ... 
arXiv:2011.06275v2 fatcat:aautuxhym5d5ppptrbt4ibcd34

How Do Behavioral Assumptions Affect Structural Inference? Evidence From a Laboratory Experiment

Daniel Houser, Joachim Winter
2004 Journal of business & economic statistics  
We find no evidence that assuming rational expectations distorts inferences about the cross-sectional distribution of discount rates.  ...  Our experimental design induces preferences up to each subject's subjective rates of time preference, leaving unrestricted only this parameter and the decision rule that the subject uses in solving the  ...  At the same time, rational expectations behavior under high time discounting is inconsistent with the frequency of delayed payoffs that are accepted.  ... 
doi:10.1198/073500103288619386 fatcat:hijs5xablbbmxhr5uyvmgarz4a

Mechanisms for Decisions about the Future [chapter]

2011 Animal Thinking  
The bounded rationality approach integrates these two perspectives by focusing on simple, plausible mechanisms of decision making and the cognitive capacities needed to implement these mechanisms.  ...  Decisions about the future provide a class of decisions that lend themselves to a bounded rationality approach.  ...  In particular, the bounded rationality approach proposes simple mechanisms by which decisions are made.  ... 
doi:10.7551/mitpress/9187.003.0011 fatcat:7nx2alfc5veg5n3fmiib5gxd2y

The Shapley value for a fair division of group discounts for coordinating cooling loads

Sasan Maleki, Talal Rahwan, Siddhartha Ghosh, Areej Malibari, Daniyal Alghazzawi, Alex Rogers, Hamid Beigy, Nicholas R. Jennings, Baogui Xin
2020 PLoS ONE  
Given an optimal cooling profile that secures the discount, the problem that the apartments face then is to divide the total discounted cost in a fair way.  ...  is fairly "rewarded" for its contribution to the optimal cost and, at the same time, is fairly "penalised" for its contribution to the discrepancy between the suboptimal and the optimal costs.  ...  As such, we focus on mitigating the second issue, by assuming that coalitions are computationally bounded rational.  ... 
doi:10.1371/journal.pone.0227049 pmid:31923244 pmcid:PMC6953874 fatcat:vphrt2gsezg2lnvjdrxle3bgkm

Noise-trading, costly arbitrage, and asset prices: Evidence from US closed-end funds

Sean Masaki Flynn
2012 Journal of financial markets  
There is no evidence that their discounts are constrained by arbitrage barriers, no evidence that higher expenses increase discounts and no evidence that replication risk increases discounts-but strong  ...  The behavior of US closed-end funds is very different from that of the UK funds studied by Gemmill and Thomas (2002) .  ...  By buying the rights to the same stream of future returns at a discount by buying fund shares at a discount, rational traders get a higher rate of return.  ... 
doi:10.1016/j.finmar.2011.06.001 fatcat:yr2zs4tidzbu5lw2dtbnbefbea

PRESENTATION. Experimental and behavioral economics. Theory, tools and topics

Pablo Brañas-Garza, Nikolaos Georgantzís
2012 Revista Internacional de Sociología  
This paper shows that anticipatory pain is related to time discounting. They ratio-This paper shows that anticipatory pain is related to time discounting.  ...  Fehr, 2008) , may help to understand the mental process underlying (bounded) rational-2008), may help to understand the mental process underlying (bounded) rationality and (out-of) equilibrium behavior  ... 
doi:10.3989/ris.2011.04.15 fatcat:y6z3tsensnatzcgxplswjtos74

Page 15 of The Journal of Business Vol. 60, Issue 1 [page]

1987 The Journal of Business  
The joint hypothesis implied by the assumptions used to derive eq. (11) includes the dividend behavioral equation (5) and a constant real discount rate in addition to stock-market rationality.  ...  They are, however, also consistent with rational stock prices and time-varying equilibrium ex- pected returns.  ... 

Making the implicit explicit: A look inside the implicit discount rate

Joachim Schleich, Xavier Gassmann, Corinne Faure, Thomas Meissner
2016 Energy Policy  
, loss, debt, and the environment), predictable (ir)rational behavior (bounded rationality, rational inattention, behavioral biases), and external barriers to energy efficiency.  ...  IDRs in energy models should vary by household and technology characteristics. a b s t r a c t Implicit discount rates (IDRs) are employed in energy models to capture household investment decisions, yet  ...  Acknowledgements We are grateful for the insightful comments provided by two anonymous reviewers.  ... 
doi:10.1016/j.enpol.2016.07.044 fatcat:jvfcae5va5eoph7bay3lntprzu

Consumers' bounded rationality: the case of competitive energy markets

Isaac Dyner, Carlos Jaime Franco
2004 Systems research and behavioral science  
Here, we do this by indicating, explicitly and implicitly, how bounded rationality operates and what policies and strategies might be appropriate to remove some of the consumers' barriers when confronting  ...  In this paper, the concept of bounded rationality is incorporated, seeking alternative grounds to the traditional approaches.  ...  ACKNOWLEDGEMENTS The authors sincerely appreciate the financial support provided by COLCIENCIAS (the Colombian Research Council).  ... 
doi:10.1002/sres.644 fatcat:x6d6l7qatbbfdb4eupofszag3q

Beliefs formation and the puzzle of forward guidance power

Elton Beqiraj, Giovanni Di Bartolomeo, Marco Di Pietro
2019 Journal of macroeconomics  
By a parsimonious macro-model that allows for the role of bounded rationality and heterogeneous agents, we obtain tempered responses for real and nominal variables. JEL: E40, E50, E21.  ...  bounded rationality is admittedly ad hoc.  ...  The intuition is that the puzzle is driven by the huge anticipation e¤ects implied by rational our results would be quite general and should apply to more sophisticated bounded rationality mechanisms,  ... 
doi:10.1016/j.jmacro.2019.01.001 fatcat:gld65acrnbgh3omeq3w5cmmugm

Time Dependent Bounded Recall Strategies Are Enough to Play the Discounted Repeated Prisoners' Dilemma

Mehmet Barlo, Guilherme Carmona
2004 Social Science Research Network  
We show that for any discount factor, there is a natural number M such that all subgame perfect outcomes of the discounted repeated prisoners' dilemma (pure strategies) can be obtained by subgame perfect  ...  Therefore, noticing that payoffs not bounded away from the minmax return can each be approximated by the minmax payoff (sustainable in equilibrium with 0-recall) enables us to conclude that bounded recall  ...  . 3 In particular, for any ε > 0 there exists a natural number M ε such that for any strictly individually rational payoff bounded away by ε from the minmax return, there is a sufficiently high discount  ... 
doi:10.2139/ssrn.882432 fatcat:uqm3ouhx5fefbf7ucbmptjhsua

Investment decisions, net present value and bounded rationality

Carlo Alberto Magni
2009 Quantitative finance (Print)  
The paper also addresses the issue of a productive cooperation between bounded and unbounded rationality. JEL codes: A11, A12, B41, C61, D46, D81, G11, G31, M21.  ...  This work shows that the hurdle-rate rule may be interpreted as a fruitful strategy of bounded rationality, where several domain-specific and project-specific elements are integrated and condensed into  ...  So doing, one leaves the realm of unbounded rationality and reaches the land of bounded rationality.  ... 
doi:10.1080/14697680902849338 fatcat:wwzujzo4jvck3auj57vylxvuvy

Assessing Individual Risk Attitudes Using Field Data From Lottery Games

Connel Fullenkamp, Rafael Tenorio, Robert Battalio
2003 Review of Economics and Statistics  
We find that although most contestants display risk averse preferences, the extent of the risk aversion implied by our estimates varies substantially with the stakes involved in the different decisions  ...  Annuities are discounted. Bounded Rationality 3 (BR3). Same as BR2 but annuities are not discounted.  ...  Our bounded rationality scenarios are motivated by biases observed in decision settings comparable to our problem.  ... 
doi:10.1162/rest.2003.85.1.218 fatcat:qn4fvceepjeltpdtmebs2nujlq
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