Rationality in context
The emergence of economic inequality has often been linked to individual differences in mental or physical capacities. By means of an agent-based simulation this paper shows that neither of these is a necessary condition. Rather, inequality can arise from iterated interactions of fully rational agents. This bears consequences for our understanding of both inequality and rationality. In a setting of iterated bargaining games, we claim that expected utility maximizing agents perform suboptimally in comparison with other strategies. The reason for this lies in complex feedback effects between an agents’ action and the quality of beliefs used to calculate expected utility. Consequentially, we argue that the standard notion of rationality as maximizing expected utility is insufficient, even for certain standard cases of economic interaction.
KeywordsInequality Rationality Bargaining Agent-based modelling Rational choice
We would like to thank Paolo Galeazzi, Frederik Van De Putte, two anonymous reviewers and audiences in Poznan, Oslo, Gent and Paris for valuable feedback and suggestions. The work of DK and JM on this project was partially supported by the Deutsche Forschungsgemeinschaft (DFG) and Agence Nationale de la Recherche (ANR) as part of the joint project Collective Attitude Formation [RO 4548/8-1]. The work of DK was partially supported by the Deutsche Forschungsgemeinschaft (DFG) and Grantov Agentura České Republiky (GAČR) as part of the joint project From Shared Evidence to Group Attitudes [RO 4548/6-1]. The work of SS was supported by the DFG through the Bamberg Graduate School of Social Sciences (BAGSS) and by the Humboldt-Foundation through the Munich Center for Mathematical Philosophy (MCMP).
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