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Consequential rationality, procedural rationality, and optimal Nash equilibrium

Author: Le Menestrel, Marc INSEAD Area: Technology and Operations Management Series: Working Paper ; 97/114/TM Publisher: Fontainebleau : INSEAD, 1997.Language: EnglishDescription: 24 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: Two perspectives on individual rationality in a social context have been traditionally considered: individuals act according to what they prefer, and individuals act according to rules. This paper is an introductory and theoretical step towards the integration of these approaches within a formal framework. We propose a definition of rationality that combines preferences for consequences with preferences for procedures. We can then consider individuals maximizing their utility for acts, as separated into utility for consequence (consequential rationality) and utility for actions themselves, as means or processes towards consequences (procedural rationality). The underlying qualitative structure of this definition enables simple and formal enhancement of game theory to allow interpretation of procedural concerns. After having formulated a solution concept of Nash equilibrium with procedural concerns, we provide a refinement called an optimal Nash equilibrium
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Two perspectives on individual rationality in a social context have been traditionally considered: individuals act according to what they prefer, and individuals act according to rules. This paper is an introductory and theoretical step towards the integration of these approaches within a formal framework. We propose a definition of rationality that combines preferences for consequences with preferences for procedures. We can then consider individuals maximizing their utility for acts, as separated into utility for consequence (consequential rationality) and utility for actions themselves, as means or processes towards consequences (procedural rationality). The underlying qualitative structure of this definition enables simple and formal enhancement of game theory to allow interpretation of procedural concerns. After having formulated a solution concept of Nash equilibrium with procedural concerns, we provide a refinement called an optimal Nash equilibrium

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