*Warning! The directory is not yet complete and will be amended until the beginning of the term.*

# 040820 UK Theories of Bounded Rationality (BA) (2016W)

Continuous assessment of course work

## Labels

http://homepage.univie.ac.at/karl.schlag/

Office hours: Thursday 11.30-12.15 or by appointment

Office hours: Thursday 11.30-12.15 or by appointment

## Details

max. 50 participants

Language: English

### Lecturers

### Classes (iCal) - next class is marked with N

Thursday
06.10.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
13.10.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
20.10.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
27.10.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Friday
11.11.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
17.11.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
24.11.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Friday
09.12.
09:45 - 13:00
Hörsaal 12 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
15.12.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
12.01.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
19.01.
09:45 - 11:15
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

Thursday
26.01.
09:45 - 13:00
Hörsaal 17 Oskar-Morgenstern-Platz 1 2.Stock

## Information

### Aims, contents and method of the course

### Assessment and permitted materials

45% midterm, 45% final (29.1.2015), 10% homeworks

### Minimum requirements and assessment criteria

### Examination topics

### Reading list

Alos-Ferrer, C. and K.H. Schlag (2007), Imitation and Learning, Handbook of Rational

and Social Choice, Chapter 11, http://www.uni-konstanz.de/micro/team/alosferrer/

papers/Imitation.pdf.

Börgers, T, A.J. Morales, and R. Sarin (2004), Expedient and monotone learning rules,

Econometrica 72, 383-405.

Börgers, T. and R. Sarin (1997) Learning Through Reinforcement and Replicator

Dynamics, Journal of Economic Theory 77, 1-14.

French, S. (1986). Decision Theory. Halsted Press, NewYork.

Rustichini, A. (1999) Optimal Properties of Stimulus-Response Learning Models,

Games and Economic Behavior 29, 244-273.

Schlag, K.H. (1998) Why Imitate, and if so, How? A Boundedly Rational Approach to

Multi-Armed Bandits, Journal of Economic Theory 78(1), 130-156.

Schlag, K.H. Distribution-Free Learning, Working Paper ECO 2007/1, European

University Institute, 2006.

Stoye, J. (2011), Statistical Decisions under Ambiguity, "Statistical Decisions under

Ambiguity," Theory and Decision 70, 129-148.

and Social Choice, Chapter 11, http://www.uni-konstanz.de/micro/team/alosferrer/

papers/Imitation.pdf.

Börgers, T, A.J. Morales, and R. Sarin (2004), Expedient and monotone learning rules,

Econometrica 72, 383-405.

Börgers, T. and R. Sarin (1997) Learning Through Reinforcement and Replicator

Dynamics, Journal of Economic Theory 77, 1-14.

French, S. (1986). Decision Theory. Halsted Press, NewYork.

Rustichini, A. (1999) Optimal Properties of Stimulus-Response Learning Models,

Games and Economic Behavior 29, 244-273.

Schlag, K.H. (1998) Why Imitate, and if so, How? A Boundedly Rational Approach to

Multi-Armed Bandits, Journal of Economic Theory 78(1), 130-156.

Schlag, K.H. Distribution-Free Learning, Working Paper ECO 2007/1, European

University Institute, 2006.

Stoye, J. (2011), Statistical Decisions under Ambiguity, "Statistical Decisions under

Ambiguity," Theory and Decision 70, 129-148.

## Association in the course directory

*Last modified: Fr 31.08.2018 08:48*

And yet bounded rationality consists of everything that does not belong to the

category of being rational. The term rationality is reserved for the classic paradigm of

decision making in Economics where (it is as if) the decision maker has precise beliefs

about the likelihood that each possible event will occur and makes decisions by

maximizing expected utility. Thus, any deviation from this paradigm falls in the

category of bounded rationality. So bounded rationality encompasses optimization

under alternative criteria, heuristics, rules of thumb, ad-hoc behavior and even

mistakes.

In this lecture we will introduce and discuss the field of bounded rationality that lies

closest to rationality, namely where the decision maker chooses actions that are

optimal according to some specified criteria or "theories".

Theories are valuable as they identify the foundations of predictions and create

benchmarks for comparison to observed behavior.

Bounded rational theories are valuable when the assumptions underlying rational

decision making are less plausible and when one is not willing to characterize behavior

as ad-hoc just because it does not conform to the most stringent framework of rational

decision making.

Excitement rises when one is able to explain common behavioral patterns such as

imitation and reinforcement as optimal according to one of these theories. Theories

provide additional insights when one learns that particular forms "work" while others do not. For instance, a particular form of imitation can lead all to jointly learn what is

best. However, to simply imitate the more successful can lead to the opposite

outcome where everyone chooses the worst action in the long run.

Some of the results presented in the lecture have only been discovered very recently

which makes the topic interesting but makes reading cumbersone. Supplementary

reading will mostly original research articles, to be used to get a general idea, their

deeper understanding is beyond the scope of this lecture. All material will be

presented in the class in a very simple context.Topics will be presented in the following order:

Making a choice for the first time: rational, maximin utility, minimax regret (French,

1986, Stoye, 2009)

Making the choice for tomorrow based on today: how to reinforce (Börgers et al,

2004), how to imitate (Schlag, 1998, Alos-Ferrer and Schlag, 2007)

Planning for the long run: the role of memory (Rustichini, 1999), evolution and

reinforcement (Börgers and Sarin, 1997), social learning and imitation (Schlag, 1998)