This essay illustrates that is if Leonard J. Savage's (1972) small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and...

Typically, models that study the role of sunk costs suppose that incumbent firms face entry by a single firm each period. In this paper, the set of equilibrium market structures that result when all firms are free to enter or exit and set prices each period are characterized. The effect of sunk...

This paper reviews a recent literature that extends the Rubinstein/Stahl bargaining model to the case of contract bargaining. Theoretical issues, such as the appropriate game form, existence, and uniqueness of equilibria, are discussed. The paper finishes with a brief overview of some...