The Revelation Principle of Bounded Rationality

Eduardo Zambrano

97-06-060

In the present paper I introduce the “revelation principle of bounded rationality.” The principle states that any behavior that a model of bounded rationality exhibits can be implemented as the choice of an agent with preferences and beliefs consistent with Savage-Bayesian rationality. The principle provides a way to unify the two main research programs on the foundations of game theory: the “decision-theoretic” program and the “bounded rationality” program. I illustrate how the principle works by providing a solution to the “El Farol''” problem, a deterministic model of bounded rationality that exhibits stochastic equilibrium behavior.The unification shows that one “need not” go outside the received theory of Savage-Bayesian decision making to provide adequate foundations for equilibrium analysis.