Knowledge, Beliefs and Economics

Knowledge, Beliefs and Economics

Edited by Richard Arena and Agnès Festré

This book surveys how economists engage with knowledge and beliefs in various fields of economic analysis, such as general equilibrium theory, decision theory, game theory, experimental economics, evolutionary theory of the firm, financial markets and the history of economic thought.

Chapter 5: Justifications of Game Theoretic Equilibrium Notions

Bernard Walliser

Subjects: economics and finance, economic psychology


Bernard Walliser 5.1 INTRODUCTION In line with the spirit of Walrasian equilibrium, game theory is based on various equilibrium notions that convey the manner in which rational players co-ordinate their actions to give rise to some relatively stable state. Any equilibrium notion is, however, defined from the modeller’s viewpoint, an equilibrium state being only subject to the necessary condition that, if the actors are involved in it, they find no interest in deviating unilaterally from it. Hence, no concrete process of reaching an equilibrium state, grounded solely on the actors’ deliberations and actions without outside intervention, is described by the modeller. Similarly to the Walrasian auctioneer, who delivers the equilibrium prices to the economic agents, it is possible to introduce a fictitious entity, the Nashian regulator, who calculates the equilibrium actions and suggests them to the actors. However, the actors would have to effectively adopt them, which is the case only if they have a good reason to think that their opponents will also adopt them, the stability condition postulated for an equilibrium not being necessarily sufficient. The aim of ‘cognitive economics’ is to study the beliefs and reasoning that economic actors use in order to adapt to dynamic situations of mutual interaction (Walliser 2000). One of its major themes is to explain the concrete processes by which the actors, invested with an instrumental as well as cognitive rationality, are susceptible of co-ordinating, on their own, on an equilibrium state. The exhibited processes must permit, in one movement,...

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