Irrational : It Takes One to Know One; a Study on Rationality Hypotheses in Game Theory

Abstract

This thesis examines the concept of rationality, which is widely used in modern economics and what is more, challenges the same concept in terms of assumptions and efficiency. The perspective of bounded rationality, as described by Simon and Tversky & Kahneman, is examined and an attempt is made to enforce this concept in the field of game theory. The classic Cournot oligopolistic game is considered to give prominence to the different results found in two cases; in the first case, both agents are rational, whereas in the second case one of the agents is boundedly rational. The rationality of the two agents is put to test only as far as the agents’ way of resolving uncertainty is concerned