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The Interplay between Analytics and Computation in the Study of Congestion Externalities: The Case of the El Farol Problem
Author(s) -
Zambrano Eduardo
Publication year - 2004
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2004.00170.x
Subject(s) - mathematical economics , nash equilibrium , game theory , bounded rationality , computer science , set (abstract data type) , aggregate (composite) , computation , aggregate behavior , inference , normal form game , economics , repeated game , mathematical optimization , aggregate demand , mathematics , artificial intelligence , algorithm , monetary policy , materials science , monetary economics , composite material , programming language
In this paper I study the El Farol problem, a deterministic, boundedly rational, multi‐agent model of a resource subject to congestion externalities that was initially studied computationally by Arthur (1994). I represent the interaction as a game, compute the set of Nash equilibria in mixed strategies of this game, and show analytically how the method of inductive inference employed by the agents in Arthur's computer simulation leads the empirical distribution of aggregate attendance to be like those in the set of Nash equilibria of the game. This set contains only completely mixed strategy profiles, which explains why aggregate attendance appears random in the computer simulation even though its set‐up is completely deterministic.