Chapter

Game Theory: The Next Stage

Eric van Damme

in Economics Beyond the Millennium

Published in print September 1999 | ISBN: 9780198292111
Published online November 2003 | e-ISBN: 9780191596537 | DOI: http://dx.doi.org/10.1093/0198292112.003.0012

Series: The ASSET Series

 Game Theory: The Next Stage

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Eric van Damme outlines the different perspectives on game theory and emphasizes the practical limits of theory based on completely rational individuals. He argues that we will inevitably be forced to consider agents with ‘bounded rationality’ but that does not mean presenting situations that are so simple that even simple individuals can solve them. He asserts that game theory will only become applicable if economists are capable of painstakingly describing the empirical situation they wish to model. Such an approach already recommended by Von Neumann and Morgenstern is far from standard in modern theory.

Keywords: bounded rationality; common knowledge; descriptive game theory; game theory; rationality

Chapter.  15406 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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