Rj 5270 (54310)

The concept of bounded rationality is not well-defined. Several aspects of bounded rationality are discussed. Two different kinds of bounded rationality are distinguished. First, rationality may be bounded in the sense that the player cannot perform all the necessary calculations within the time frame of the game. This applies not only to numerical calculations but also to any kind of information processing, for example, figuring out logical consequences, or self-examination of prefer- ences. Recent studies on the effect of bounded rationality concentrate on this type, studying the effect of limited computational capability on the set of Nash-equilibria of the game. Some objections to the approach taken in these papers in dealing with the question of bounded rationality are presented