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Unformatted text preview: Uncertainty and Mistakes: We know that we all make mistakes which can change response/action. In equilibrium, I know you make mistake, so I change my strategy to benefit from your mistake. Then we allow for each other to make mistakes, which may seem totally crazy, but thats what makes the world work. If we assume that people never make mistakes and all actions are rational, there are actions that you take personally. If everything was intentional, you will hate the world. But if people make mistakes, you will let it go. You also dont know what my preferences are and vice versa. Not know whats in your best interest, vice versa. I may not even know whats in my best interest. Hotelling, a prime example of where equilibrium is INEFFECIENT! They place their stores in areas of their best interest, not societys....
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- Summer '08