Rationality in Context. On Inequality and the Epistemic Problems of Maximizing Expected Utility
Dominik Klein, Johannes Marx and Simon Scheller
The emergence of economic inequality has often been linked to individual differences in mental or physical capacities. By means of an agent-based simulation this paper shows that neither of these is a necessary condition. Rather, inequality can arise from iterated interactions of fully rational agents. This bears consequences for our understanding of both inequality and rationality. In a setting of iterated bargaining games, we claim that expected utility maximizing agents perform suboptimally in comparison with other strategies. The reason for this lies in complex feedback effects between an agents’ action
and the quality of beliefs used to calculate expected utility. Consequentially, we argue that the standard notion of rationality as maximizing expectedRationality in Context.
At the moment we work on the normative consequences of the simulational results.