| Abstract: | In this paper, we argue that it is essential to incorporate bounded rationality into game theory. Game theory has been applied to aspects of economics such as industrial organizati on on the basis of the naive interpret ation of game theory, which requires players to be ideally rational in an extremely unrealistic way. We stress the importance of establishing the perceptive interpretation of game theory by taking boundedly rational players' inductive reasoning processes into account. We explain my recent work, Matsushima (1997), which shows that the subjective games perceived by players in the long run are entirely different from the true objective game, and are trivial games in the sense that there exists a strictly dominant and subjectively Pareto-efficient strategy profile among the set of pure strategy profiles.
JEL Classification Numbers: C70, C90, D43, D80 |
