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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Our Limited Abilities

Way before the revelations of prospect theory, Nobel Laureate Herbert Simon famously argued that we are far from the infinitely skilled and rational decision makers that economic theory and game theory demand us to be. His phrase, “bounded rationality,” represents the imperfect tools with which we navigate the world of decision-making as well as the limits imposed by our environment. The following three points should make this clear.
• We are limited in the information that is available when we need to make decisions. This is nothing new to us; we’ve seen that game theory is rich in models of incomplete information. Yet we have to concede that a dearth of information certainly makes our decisions, well, less than informed. ...

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