Players With Limited Memory

This paper studies a model of memory. The model takes into account that memory capacity is limited and imperfect. We study how agents with such memory limitations, who have very little information about their choice environment, play games. We introduce the notion of a Limited Memory Equilibrium (LME) and show that play converges to an LME in every generic normal form game. Our characterization of the set of LME suggests that players with limited memory do (weakly) better in games than in decision problems. We also show that agents can do quite well even with severely limited memory, although severe limitations tend to make them behave cautiously.