Postprint version. Published in Journal of Public Economic Theory, Volume 6, Issue 2, May 1, 2004, pages 375-395. Copyright © 2004 Blackwell Publishing. The definitive version is available at http://dx.doi.org/10.1111/j.1467-9779.2004.00170.x.
NOTE: At the time of publication, the author Eduardo Zambrano was not yet affiliated with Cal Poly.
In this paper I study the El Farol problem, a deterministic, boundedly rational, multi-agent model of a resource subject to congestion externalities that was initially studied computationally by Arthur (1994). I represent the interaction as a game, compute the set of Nash equilibria in mixed strategies of this game, and show analytically how the method of inductive inference employed by the agents in Arthur’s computer simulation leads the empirical distribution of aggregate attendance to be like those in the set of Nash equilibria of the game. This set contains only completely mixed strategy profiles, which explains why aggregate attendance appears random in the computer simulation even though its set-up is completely deterministic.