publication . Article . 1994

Rationality of limited rationality : some aggregate implications

Uri M. Possen; Mikko Puhakka;
Open Access
  • Published: 01 Jan 1994 Journal: Finnish Economic Papers, volume 7, issue 2 Autumn, pages 83-93
In this paper we let economic agents choose whether to become fully rational or stay boundedly rational. Boundedly rational agents are less sophisticated in their information processing abilities. It is costly to acquire information needed to become fully rational, and thus not all agents are willing to incur those costs. We then explore the aggregate effects of endogenizing the decision whether the agent should or should not become fully rational in handling information. Since fully and boundedly rational individuals make different saving and consumption decisions, their interaction has a direct impact on the size of capital stock, aggregate savings and the vol...
ACM Computing Classification System: ComputingMethodologies_SYMBOLICANDALGEBRAICMANIPULATION
free text keywords: jel:D81, jel:E21, jel:E22
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