Satisficing Equilibrium

TL;DR

This paper introduces satisficing equilibrium, a concept where agents choose from their top actions, unifying bounded rationality models and providing sharp, empirically testable predictions across various game types.

Contribution

It presents a new equilibrium concept that generalizes rationality assumptions, with proven existence, broad applicability, and strong theoretical and empirical foundations.

Findings

Exists in most games and economic environments

Provides sharp, testable predictions

Unifies models of bounded rationality

Abstract

In a satisficing equilibrium each agent $i$ plays one of her top $k_i$ actions in response to the actions of the other agents. Our concept unifies models of bounded rationality and yields predictions that differ from canonical solution concepts. We study its theoretical properties and show that it provides sharp predictions, exists in most games as well as in a broad new class of economic environments, admits standard epistemic and dynamic foundations, and is empirically falsifiable.