We study an extension of the notion of correlated equilibrium that allows players to make information processing errors. A typical way in which such errors arise is if players take information at face value, that is, if players do not consider how their information would differ in different states of the world. (This is despite the fact that such considerations could well yield better information.) We model errors such as these by weakening the assumption that players possess information partitions. It is shown that introducing information processing errors is equivalent to allowing "subjectivity," i.e., differences between the players' priors. Hence a bounded rationality justification of subjective priors is provided. We examine in detail the implications of allowing various forms of information processing errors.
ASJC Scopus subject areas
- Economics and Econometrics