SFB 303 Discussion Paper No. B - 361
Author: Karl H. Schlag
Title: Why Imitate, and if so, How? A Bounded Rational Approach to
Abstract: We consider the situation in which individuals in a finite population must repeatedly choose an action yielding
an uncertain payoff. Between choices, each individual may observe the performance of one other individual.
We search for rules of behavior with limited memory that increase expected payoffs for any underlying payoff
distribution. It is shown that the rule that outperforms all other rules with this property is the one that specifies
imitation of the action of an individual that performed better with a probability proportional to how much
better she performed. When each individual uses this best rule, the aggregate population behavior can be
approximated by the replicator dynamic.
Keywords: social learning, bounded rationality, imitation, multi-armed bandit, random matching, payoff increasing,
JEL-Classification-Number: C72, C79
Creation-Date: March, 1996
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