Epistemic Model with Boundedly Rational Players

A general and simple model for analyzing epistemic foundations of decision concepts in non-cooperative game theory will be proposed. In the model, a player faces a strategic situation described by an epistemic picture — a set of statements written in a formal language. Based on the epistemic picture, the player constructs a state space and a set of actions; forms preferences over actions; and selects the optimal action. The player has a finite level of reasoning: he includes in his state space all possible options for the actions of opponents with a level lower than his.
The model examines the correspondence between epistemic pictures and the behavior they generate. In particular, we will propose sufficient conditions under which this behavior will be stable w.r.t. (i) increasing accuracy of epistemic pictures, (ii) increasing the skill level of players, (iii) changing the extensive form of the game, and reassessing the epistemic foundations of several basic non-cooperative decisions.