BOUNDEDLY RATIONAL NASH EQUILIBRIUM - A PROBABILISTIC CHOICE APPROACH

We propose an equilibrium for n-person finite games based on bounded r ationality using the legit model of discrete choice theory. At equilib rium, each player uses appropriate choice probabilities, given those u sed by the others. Rationality is parameterized on a continuum from co mplete rationality to uniform random choice. Results on the existence of equilibrium and on convergence to Nash as rationality becomes perfe ct are Similar to results due to McKelvey and Palfrey. We identify con ditions such that for a given rationality parameter range the path of choices over time when the players use fictitious play converges to eq uilibrium. (C) 1997 Academic Press.