Irrationality-Proofness: Markets versus Games

International Economic Review (Forthcoming)

28 Pages Posted: 4 Jun 2008 Last revised: 12 Dec 2013

See all articles by Michael Mandler

Michael Mandler

University of London, Royal Holloway College - Department of Economics

Date Written: December 2013

Abstract

How robust are economic models to the introduction of irrational agents? The Pareto efficiency of competitive equilibria is not robust: one irrational agent leads to inefficiency. But the property that rational agents cannot use their own resources to Pareto-improve on their competitive allocation holds regardless of the number of irrational agents. Full production efficiency can be robust as well, but irrational firms introduce a trade-off between efficiency and the attainment of Pareto improvements. Regarding games, we show that while existing implementation mechanisms are sensitive to the presence of irrational agents there are robust alternatives with attractive welfare properties.

Keywords: irrationality, Pareto efficiency, general equilibrium, implementation, production efficiency

JEL Classification: D01, D51, D61, D78, C72

Suggested Citation

Mandler, Michael, Irrationality-Proofness: Markets versus Games (December 2013). International Economic Review (Forthcoming), Available at SSRN: https://ssrn.com/abstract=1140385 or http://dx.doi.org/10.2139/ssrn.1140385

Michael Mandler (Contact Author)

University of London, Royal Holloway College - Department of Economics ( email )

Royal Holloway College
University of London
Egham, Surrey TW20 0EX
United Kingdom
+44 1784 443985 (Phone)

HOME PAGE: http://personal.rhul.ac.uk/uhte/035/

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