Bounded Rationali...
18.5K views | +0 today
Scooped by Alessandro Cerboni
onto Bounded Rationality and Beyond!

Mental Illness and Leadership

Mental Illness and Leadership | Bounded Rationality and Beyond |
In times of crisis, mentally ill leaders—including Abraham Lincoln and Winston Churchill—can see what others don't. Adapted from A First-Rate Madness: Uncovering the Links Between Leadership and Mental Illness by Nassir Ghaemi.
No comment yet.
Bounded Rationality and Beyond
News on effects of Bounded Rationality
Your new post is loading...
Scooped by Alessandro Cerboni!

Effects of Stress on Economic Decision-Making: Evidence from Laboratory Experiments

Abstract: The ways in which preferences respond to the varying stress of economic environments is a key question for behavioral economics and public policy. We conducted a laboratory experiment to investigate the effects of stress on financial decision making among individuals aged 50 and older. Using the cold pressor task as a physiological stressor, and a series of intelligence tests as cognitive stressors, we find that stress increases subjective discounting rates, has no effect on the degree of risk-aversion, and substantially lowers the effort individuals make to learn about financial decisions.

Liam Delaney (, Günther Fink ( and Colm P. Harmon ( 
No comment yet.
Scooped by Alessandro Cerboni!

Manipulate Me: The Booming Business in Behavioral Finance

Manipulate Me: The Booming Business in Behavioral Finance | Bounded Rationality and Beyond |

It's hard to find a place today where concepts of behavioral finance aren’t being applied to real-world situations. From London to Washington to Sydney, governments are experimenting with the psychology of decision-making and trying to “nudge” citizens toward better behaviors, whether that means saving more for retirement or signing an organ donation card. Meanwhile, businesses see opportunities for higher profits. To grab more attention and dollars from consumers, companies as far afield as banks and fitness-app makers carefully design their offerings with consumers’ decision-making quirks in mind. The article discusses some of the challenges encountered in using behavioral science in the commercial sphere which raises an important question about how much change should we expect from the application of behavioral science findings in the commercial market and the difficulty in reaching consumers with well intentioned products designed to "nudge" them into more positive behavior. 

In a crowded market place, how do you get consumers to respond and engage behavioral products or is behavioral science best applied in the policy sphere?

No comment yet.
Scooped by Alessandro Cerboni!

Dagli "Animal Spirits " di Keynes all'Economia Comportamentale la strada è ancora lunga e irta di difficoltà.

Dagli "Animal Spirits " di Keynes all'Economia Comportamentale la strada è ancora lunga e irta di difficoltà. | Bounded Rationality and Beyond |

“Our decision to do something positive can only be taken as a result of animal spirits and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities” –
John Maynard Keynes

Le prossime sfide della neuroeconomia sono su due fronti:
• Nucleo dell’ortodossia e dei libri di testo. Economia comportamentale non ha fatto molto effetto nei testi di base, questi rimangono ancora ancorati al concetto di razionalità assoluta e ai monelli formali. In altri settori, come la psicologia cognitiva e delle neuroscienze, i libri di testo a tutti i livelli vengono aggiornati vivacemente. Gli economisti invece sono lenti e refrattari sull’aggiornamento dei libri di base.
• La Misurazione. Le frontiere teoriche della teoria economica discutono dei costi del pensiero, della scarsa attenzione nelle scelte, del forte impatto dell’incertezza macroeconomica, delle preferenze dei gruppi, dell’ansia, delle norme sociali, e così via. Tutti questi costrutti sono marcatori biologici e altro. Capire che le teorie economico sono più giuste sarà più rapido se misuriamo anche i correlati biologici di queste variabili. Altrimenti sarebbe come se in medicina, si facessero un sacco di teorie su ciò che provoca una malattia, ma ci si rifiutasse di fare delle analisi sul paziente reale o di usare un microscopio per esaminare campioni di tessuto? Ecco dove l’economia è in conflitto in relazione a singole decisioni e scelte economiche. Purtroppo, gli economisti sono molto lenti sull’adozione della tecnologia ed ad abbandonare le certezze dei loro bei modelli logici costruiti in modo slegato dalla realtà. Fortunatamente, gli studenti e i nuovi laureati sono molto sensibili alle scienze sociali.e si spera in una rapida evoluzione del quadro teorico di base.

No comment yet.
Scooped by Alessandro Cerboni!

Colin Camerer: Genius Whose Ideas About Behavior Could Change Lives

Colin Camerer: Genius Whose Ideas About Behavior Could Change Lives | Bounded Rationality and Beyond |

Caltech’s Colin Camerer is a recent recipient of a MacArthur Foundation grant to continue his work as a leader of the emerging field of neuroeconomics.

Behavioral science received a nice pat on the back in September, when California Institute of Technology neuroeconomist Colin Camerer won a $625,000 no-strings-attached MacArthur Foundation “genius grant.”

Using fMRI imaging, game-theory laboratory experiments, and a variety of other empirical tools, Camerer’s work reaches across several disciplines and has been instrumental in the ongoing attempts to rewrite standard economic accounts of human decision-making so that they better map real-life behavior. As the Foundation put it, Camerer’s “innovative thinking and modeling acumen are fostering an even more nuanced analysis of individual behavior and the practical policy implications of neuroscientific insights about human decision making. Camerer recently conducted an email interview with Pacific Standardwhich touched on everything from financial regulation to the origins of brain-scan pseudoscience to the ongoing problems with economic orthodoxy. The interview has been shortened and lightly edited from its original form.

No comment yet.
Scooped by Alessandro Cerboni!

Why Do Investors Make Bad Choices? by Cass R. Sunstein

Why Do Investors Make Bad Choices? by Cass R. Sunstein | Bounded Rationality and Beyond |

 Cass R. Sunstein - For many years, I have studied human behavior, including the mistakes occasionally made by fallible people, including investors.

But a few years ago, I made a really dumb investment decision. In a single day, I hit the trifecta, committing at least three classic behavioral mistakes.

The year was 2011. The stock market was recovering well from its terrible collapse during the Great Recession, but over a short period it had a series of stumbles. I got nervous. What if it collapsed again?

No comment yet.
Scooped by Alessandro Cerboni!

Epistemic Noise | Malaspina | Systema: connecting matter, life, culture and technology

Epistemic Noise | Malaspina | Systema: connecting matter, life, culture and technology | Bounded Rationality and Beyond |

Epistemic Noise


In La Methode Edgar Morin reveals entropy and its analogous concept, noise, to play a more fundamental role than merely that of a factor of thermal degradation or obstacle to communication. Morin continuously weaves together the empirical concern for entropy, as an aspect of both thermal degradation and organization in systems far from equilibrium, and the epistemological concern for noise, as an aspect both of perturbation of communication and of an uncertainty constitutive of new structures of the understanding. In the light of his theory of eco-complexity, entropy and noise become almost synonymous when considered as constitutive factors of self-organization. What Morin is after in his epic journey from cosmogenesis to the evolution of the biosphere and of human culture is not, as he says, an ‘adventure novel’ of cosmic and planetarian evolution, but an understanding of the transformation of concepts and theories, invigorated by the novel understanding of the constitutive role of entropy and noise in the emergence and organization of systems with increased complexity. This article argues that the gear-shift from the empirical narrative of ontogenetic aspects of entropy to the metasystemic analysis of the organisational factor of noise raises fundamental philosophical and specifically epistemological stakes: namely that the conditions and structures of our understanding may be, like every other system, subject to transformation on the basis of noise.Keywords
Morin; complexity; noise; information; entropy; epistemology; metastability 
Eli Levine's curator insight, April 14, 10:44 AM

Think of the dialetic between a given society and the government that exists within it.  The government checks and reigns in the disorder and chaos of society while the society checks and makes clear in the light of common reality the limits of government's ability to bring a set order to society.  The two, ideally, should be conscientiously supporting each other by supporting their own self interests.  The members of society do not want to be checked by the government, either in terms of jail time or execution and the government's members do not want to be removed from their places of consequence, influence and authority.  The only way the relationship works is if both the society and the government are working together to form the best possible outcomes for each other in the large-self sense of self, which calculates in the needs and wishes of the other in the relationship.


You can also look at a relationship between two people, one more orderly, the other more chaotic (as per the Theory of Order and Chaos Muppets).  They each work together to form something more than the two of them separate, such that there is a dynamic and a dialogue between the two that both never really settles into equilibrium, yet is also always in a state of balance between the two.  Excesses or deficits on the part of one will negatively effect the other, and will lead to changes in behavior in both parties, such that there is a correction on the part of one or a disintegration into something else as a result of the system coming out of equilibrium.  If the relationship is stable and boths ides are committed to the other, they will reform and come to a different yet similar equilibrium point again.


It's interesting to see that this could be hypothetically applicable to the entirety of the universe on the micro and macro levels, and to our own human societies and interpersonal relationships.  I suppose that this is evidence to suggest that there really isn't so much that differentiates us as living beings from the matter and space which composes us.


Think about it.

Rescooped by Alessandro Cerboni from Papers!

Complex Thinking for a Complex World – About Reductionism, Disjunction and Systemism, by Edgar Morin

This article is based on the keynote address presented to the European Meetings on Cybernetics and Systems Research (EMCSR) in 2012, on the occasion of Edgar Morin receiving the Bertalanffy Prize in Complexity Thinking, awarded by the Bertalanffy Centre for the Study of Systems Science (BCSSS).
The following theses will be elaborated on: (a) The whole is at the same time more and less than its parts; (b) We must abandon the term "object" for systems because all the objects are systems and parts of systems; (c) System and organization are the two faces of the same reality; (d) Eco-systems illustrate self-organization.


Complex Thinking for a Complex World – About Reductionism, Disjunction and Systemism
Edgar Morin

Systema: connecting matter, life, culture and technology Vol 2, No 1 (2014)

Via Complexity Digest
Eli Levine's curator insight, April 13, 10:21 PM

There is a kind of meditation in Buddhist practice known as analytical meditation.  It's purpose is to inform us about an object, all of its properties and all of the associations, connections and contexts that it can have in the individual and collective sense. 


We're not going to be perfect coming up with all of the connections all of the time.  However, I think it's a good starting basis for the purposes of analyzing complex systems and all of the layered, interconnected parts.  We are one, and one is all.


The universe is us as well as around us.

And that's a scientific fact, it seems.


Think about it.

Luciano Lampi's curator insight, April 14, 2:37 PM

objects versus systems?

Scooped by Alessandro Cerboni!

EconPapers: The Economics of the Gift

By David Reinstein 

This essay broadly considers gifts, giving, and gift economies, modern and pre-modern, from a mainstream (and behavioural) economics perspective. I present a selective survey of the literature focusing on six key points:
1. Commercial transactions sustained by reputation are not easily distinguishable from gift exchange economies;
2. Gift-giving allows the giver to accumulate goods that cannot be purchased commercially;
3. When the giver retains some use, experience, or control over the gift, she shares in the consumption of it;
4. Considering behavioural issues such as regret aversion, gift-giving may offer overlooked efficiencies that may balance out the deadweight losses from ‘inadequate gifts’;
5. Aggregate (anonymous) giving can be an important signal of overall group identity and character;
6. Historical modes of ‘giving under pressure’ offer insights for modern public policy and philanthropy.

No comment yet.
Scooped by Alessandro Cerboni!

The Hidden Brain: How Ocean Currents Explain Our Unconscious Social Biases

The Hidden Brain: How Ocean Currents Explain Our Unconscious Social Biases | Bounded Rationality and Beyond |

"Those who travel with the current will always feel they are good swimmers; those who swim against the current may never realize they are be -

Biases often work in surreptitious ways — they sneak in through the backdoor of our conscience, our good-personhood, and our highest rational convictions, and lodge themselves between us and the world, between our imperfect humanity and our aspirational selves, between who we believe we are and how we behave. Those stealthy inner workings of bias are precisely what NPR science correspondent Shankar Vedantam explores inThe Hidden Brain: How Our Unconscious Minds Elect Presidents, Control Markets, Wage Wars, and Save Our Lives (public library) — a sweeping, eye-opening, uncomfortable yet necessary account of how our imperceptible prejudices sneak past our conscious selves and produce “subtle cognitive errors that lay beneath the rim of awareness,” making our actions stand at odds with our intentions and resulting in everything from financial errors based on misjudging risk to voter manipulation to protracted conflicts between people, nations, and groups.

In the introduction, Vedantam contextualizes why this phenomenon isn’t new but bears greater urgency than ever:

Unconscious biases have always dogged us, but multiple factors made them especially dangerous today. Globalization and technology, and the intersecting faultlines of religious extremism, economic upheaval, demographic change, and mass migration have amplified the effects of hidden biases. Our mental errors once affected only ourselves and those in our vicinity. Today, they affect people in distant lands and generations yet unborn. The flapping butterfly that caused a hurricane halfway around the world was a theoretical construct; today, subtle biases in faraway minds produce real storms in our lives.

Eli Levine's curator insight, April 11, 7:51 AM

It's all in there.


All of your chosen actions, biases, preferences, inclinations and disinclinations.

It operates on a level that you're not even aware of.


And it makes you do some of the most insane and crazy things that you won't even think or realize are insane and crazy.


Think about it.

Scooped by Alessandro Cerboni!

Pikant and Naumof Behavioral and Decision Sciences training and consultancy

Pikant and Naumof Behavioral and Decision Sciences training and consultancy | Bounded Rationality and Beyond |
The Environment Influences What You Do and What You Think
And You Don’t Even Realize It! Diffusing a pleasant scent in a shop leads to better evaluations of the merchandise and to a (20%) sales increase.Rearranging the food on a table increases the consumption of fruit and decreases the consumption of brownies. Playing Classical Music in a wine shop leads to a sales increase in value, but not in volume. Making Things Fun (e.g. the Piano Stairs) is Not necessarily a Good way of Influencing Behavior.
No comment yet.
Scooped by Alessandro Cerboni!

Effetti cerebrali dei bambini alla vista di brand commerciali

Effetti cerebrali dei bambini alla vista di brand commerciali | Bounded Rationality and Beyond |
Come reagiscono i bambini alla vista di brand commerciali? Alcune ricerche di neuroscienze cercano di dare risposta. 

A quanti messaggi pubblicitari siamo esposti quotidianamente? Tv, quotidiani, web: mezzi dalle diverse caratteristiche che attivano in maniera diversa l’utente finale. 

Di questi la TV è il mezzo più ipnotico. Utilizzo la parola “ipnotico” non a caso; quando guardi la TV il tuo cervello passa da uno stato di attività, con maggiore presenza di onde beta (14-40 Hz), attive per esempio quando leggi un libro o cerchi di trovare una soluzione ad un problema, ad uno di passività, qui sono le onde alfa (7,5-13,5 Hz) ad intervenire, onde presenti negli stati di rilassamento e meditazione (se vuoi approfondire ecco un utile link).

Se questi sono gli effetti su un cervello adulto, pensa a cosa avviene in un cervello in via di sviluppo come quello di un bambino.

No comment yet.
Scooped by Alessandro Cerboni!

The Halo Effect: When Your Own Mind is a Mystery

The Halo Effect: When Your Own Mind is a Mystery | Bounded Rationality and Beyond |
The idea that global evaluations about a person bleed over into judgements about their specific traits.

The ‘halo effect’ is a classic finding in social psychology. It is the idea that global evaluations about a person (e.g. she is likeable) bleed over into judgements about their specific traits (e.g. she is intelligent). Hollywood stars demonstrate the halo effect perfectly. Because they are often attractive and likeable we naturally assume they are also intelligent, friendly, display good judgement and so on. That is, until we come across (sometimes plentiful) evidence to the contrary.

In the same way politicians use the ‘halo effect’ to their advantage by trying to appear warm and friendly, while saying little of any substance. People tend to believe their policies are good, because the person appears good. It’s that simple.

But you would think we could pick up these sorts of mistaken judgements by simply introspecting and, in a manner of speaking, retrace our thought processes back to the original mistake. In the 1970s, well-known social psychologist Richard Nisbett set out to demonstrate how little access we actually have to our thought processes in general and to the halo effect in particula.

No comment yet.
Scooped by Alessandro Cerboni!

Why People Secretly Fear Creative Ideas — PsyBlog

Why People Secretly Fear Creative Ideas — PsyBlog | Bounded Rationality and Beyond |

Why creative ideas are often rejected in favour of conformity and uniformity.

Does society really value creativity? People say they want more creative people, more creative ideas and solutions, but do they really?

For one thing teachers don’t generally like creative students. Primary school teachers in one study liked the most creative kids the least (Westby & Dawson, 1995). This isn’t an isolated finding in education and probably a result of the fact that creative kids are generally more disruptive; naturally they don’t like to follow the rules.

For all the talk of creativity in business, industry and academia, there’s evidence that it’s implicitly discouraged in these areas as well. Although leaders of organisations say they want creative ideas, the evidence suggests creativity gets rejected in favour of conformity and uniformity (Staw, 1995 cited in Mueller et al., 2011).


People often reject creative ideas, even when espousing creativity as a desired goal. To explain this paradox, we propose that people can hold a bias against creativity that is not necessarily overt and that is activated when people experience a motivation to reduce uncertainty. In two experiments, we manipulated uncertainty using different methods, including an uncertainty-reduction prime. The results of both experiments demonstrated the existence of a negative bias against creativity (relative to practicality) when participants experienced uncertainty. Furthermore, this bias against creativity interfered with participants’ ability to recognize a creative idea. These results reveal a concealed barrier that creative actors may face as they attempt to gain acceptance for their novel ideas.

Eli Levine's curator insight, April 5, 11:09 PM

I'll be one of the first people to say that creativity has its limits.  There are only so many functional designs in the design space of our universe, that you can't have all of the cool, but unworkable ideas put into place or accepted.


However, you need people who look at things in a variety of different ways, in order to land at something which we can approximately call objective truth.


Take the definition of "wealth" for example.  There are several academic definitions of what constitutes wealth, each one sort of adding a new layer of complexity and richness to the others.  You cannot just have a nebulous and ethereal definition, but at the same time, you can't have one definitive definition that truly will be above falsification, editing and revision (especially if you attempt to get at the real nitty gritty definitions of what constitutes wealth).


This anti-creative thinking is something that I've faced since I was a small child.  Humans are basically a conservative species.  We like rules, order, certainty and consistency from our environment.  The ability to change on the individual level is severely limited by our biology, and the social pressure to conform and maintain a definition of normalcy simply adds to the conservatism of the species.  We don't seek innovation, unless we want something out of it, and we don't change anything unless or until it causes catastrophic failure for the individual or the collective society and even that change is debatable after looking at the fall out from the French, Russian, Chinese and Iranian revolutions.  The only change that is possible are those changes we have the capacity within ourselves to make.  That is limited, again, by individual biology and environmental factors.


I do not doubt that humanity will find clever ways that work to solve its problems.  What is in doubt, as far as I'm concerned, is our willingness to entertain and experiment with those ideas in time for us to make any use of them.  Change and uncertainty are the only constants that are going to be with us.  Might as well learn to live with them.


Silly conservative humans.


Think about it.

Scooped by Alessandro Cerboni!

Essay: Our Brains Aren't to Blame for Our Financial Woes

Essay: Our Brains Aren't to Blame for Our Financial Woes | Bounded Rationality and Beyond |

Behavioral finance is a breakout star of the post-2008 economic world. A little-known academic discipline a mere decade ago, this combination of psychology and finance now serves as a catchall explanation for why we act against our own financial best interests time and time again.

In the view of many behavioral finance promoters, the fault for our many financial failures is not in our stars, or in a less-than-stable economy. It’s that we’re not rational. Even at the price of our long-term financial well-being, we simply can’t resist falling prey to anything from too-good-to-be-true housing bubbles to impulsive luxury purchases.

It’s a tempting explanation, this behavioral finance thing. Just about all of us can recall money frittered away on fripperies like frappuccinos that we could’ve, should’ve saved for that unexpected medical bill.

It's our own fault, we think. We shop too much and we fall for housing and stock market bubbles. If only we’d had an automatic savings plan that could have saved us from ourselves! We'd be rich -- or at least not in the desperate straits so many of us are in, lacking emergency funds and piling on more credit card debt than we have in savings accounts.

No comment yet.
Scooped by Alessandro Cerboni!

Vincenzo Barbato: I 12 bias cognitivi che ci impediscono di essere razionali

Vincenzo Barbato: I 12 bias cognitivi che ci impediscono di essere razionali | Bounded Rationality and Beyond |

Il bias è una forma di distorsione della valutazione causata dal pregiudizio. La mappa mentale d'una persona presenta bias laddove è condizionata da concetti precedenti non necessariamente connessi tra loro da legami logici e validi.
Il bias, contribuendo alla formazione del giudizio, può quindi influenzare un'ideologia, un'opinione, e un comportamento. È probabilmente generato in prevalenza dallecomponenti più ancestrali e istintive del cervello.
Il cervello umano è capace di eseguire 10^16 (10 alla sedicesima processi al secondo), il che lo fa essere più potente di qualsiasi computer oggi esistente. Questo però non significa che i nostri cervelli non abbiano delle limitazioni. Una calcolatrice delle più economiche è migliaia di volte meglio di noi in matematica, spesso la memoria non ci assiste, e in più siamo soggetti a biasis cognitivi, quei fastidiosi difetti del nostro modo di pensare che ci fanno prendere decisioni discutibili e giungere a conclusioni errate. Qui abbiamo raccolto una dozzina dei biasis cognitivi più comuni e dannosi che è necessario conoscere (e nel caso correggere).
Prima di iniziare, è importante distinguere tra biasis cognitivi e fallacie logiche.
Una fallacia logica è un errore nell'argomentazione logica (Es: attacco ad hominem,fallacia del piano inclinato, degli argomenti circolari, ricorso alla forza, etc).
Un biasis cognitivo, invece, è una vera carenza o un limite del nostro pensiero: un difetto nel giudizio che deriva da errori della memoria, attribuzione sociale ed errori di calcolo (ad esempio errori statistici o un falso senso di probabilità).
Alcuni psicologi sociali credono che i nostri biasis cognitivi ci aiutino a elaborare le informazioni in modo più efficiente, soprattutto nelle situazioni di pericolo. Eppure, ci portano a commettere gravi errori. Magari siamo inclini a questo tipo di errori, possiamo imparare però ad esserne consapevoli. Qui ci sono alcuni tra i più importanti da tenere in mente.

No comment yet.
Scooped by Alessandro Cerboni!

The Exceptional Motivational Power Of Pizza

The Exceptional Motivational Power Of Pizza | Bounded Rationality and Beyond |

Over the decades I was involved in more employee surveys than I can recall.  But one thing I do recall is that the single issue that came up in literally all of them – a chronic source of employee frustration – was lack of recognition.   Employees never felt they were getting enough of it.


Yesterday I was reminded yet again how big a difference small things make in management.   I was speaking with a young woman in a very good mood.  She’d just gotten out of work – she has a temporary position at a hotel, greeting guests who are in town for conferences – and at the end of the day her supervisor had told her she was doing a fine job and gave her a small card.  The young woman showed me the card.  It said:

“We appreciate your outstanding service!  Thank you for being so welcoming, thoughtful and friendly to our guests.   Please enjoy a slice of pizza & a Pepsi for 75 cents as our thanks.”  At the bottom of the card were listed several local eateries where the card could be redeemed.

I sort of wondered why she had to pay 75 cents – why weren’t the pizza and Pepsi free?  But no matter.  And no matter that the card’s value (let’s assume around here in round numbers a slice of pizza costs $3 and a Pepsi $1) was around $3.25.  The young woman couldn’t have been more pleased.  The card was the highlight of her day.


No comment yet.
Scooped by Alessandro Cerboni!

Music, Fame, and Sexual Selection

Music, Fame, and Sexual Selection | Bounded Rationality and Beyond |
Does music play a role in sexual selection? 

Famous musicians like Mick Jagger, Justin Timberlake, and Kanye West seem to have no trouble attracting women. But does an interest in music give any advantage to guys who rock out in garages and basements rather than stadiums? An elegantly simple experiment done in France suggests that it does.

First, researchers recruited a good-looking young man. (To do this they showed photographs of 14 male volunteers to a number of young women and asked them to rate each man’s attractiveness on a scale of 1 to 10. The man with the highest score became their confederate in the experiment.)

Next, on a sunny afternoon in early summer, the good-looking confederate took up his place on one of the shopping streets of a small city. His contribution to science was to approach women between the ages of 18 and 22 who were walking alone and (following a set script) ask for their phone number so he could invite them to meet later for a drink. He did this in three different conditions: Holding an acoustic guitar case, holding a sports bag or a control condition of holding nothing. 

The researchers hypothesized that more women would be receptive to the young man’s overtures if he was holding a guitar case. Charles Darwin believed that music played a role in human courtship and sexual selection. This idea continues to have plausibility among researchers today who hypothesize that musical interest or ability may be associated with intelligence and physical dexterity—both traits that are likely to be attractive to women.

No comment yet.
Scooped by Alessandro Cerboni!

Uncertainty, Evolution, and Behavioral Economic Theory

Armen Alchian was one of the great economists of the twentieth century, and his 1950 paper, Uncertainty, Evolution, and Economic Theory, one of the most important contributions to the economic literature. Anticipating modern behavioral economics, Alchian explains that firms most decidedly do not – cannot – actually operate as rational profit maximizers.
Nevertheless, economists can make useful predictions even in a world of uncertainty and incomplete information because market environments “adopt” those firms that best fit their environments, permitting them to be modeled as if they behave rationally. This insight has important and under-appreciated implications for the debate today over the usefulness of behavioral economics.
Alchian’s explanation of the role of market forces in shaping outcomes poses a serious challenge to behavioralists’ claims. While Alchian’s (and our) conclusions are born out of the same realization that uncertainty pervades economic decision making that preoccupies the behavioralists, his work suggests a very different conclusion: The evolutionary pressures identified by Alchian may have led to seemingly inefficient firms and other institutions that, in actuality, constrain the effects of bias by market participants. In other words, the very “defects” of profitable firms — from conservatism to excessive bureaucracy to agency costs — may actually support their relative efficiency and effectiveness, even if they appear problematic, costly or inefficient. In fact, their very persistence argues strongly for that conclusion.
In Part I, we offer a short summary of Uncertainty, Evolution, and Economic Theory. In Part II, we explain the implications of Alchian’s paper for behavioral economics. Part III looks at some findings from experimental economics, and the banking industry in particular, to
demonstrate how biases are constrained by firms and other institutions – in ways often misunderstood by behavioral economists. In Part IV, we consider what Alchian’s model means for government regulation (with special emphasis on antitrust and consumer protection regulation).

Eli Levine's curator insight, April 14, 3:41 PM

What I'm getting at here, is that there are some cases where companies seem inefficient on the surface, but are actually better able to function because of whatever is a perceived inefficiency.  That is most likely true.


However, I don't think that it changes the fact that human beings aren't as smart or as "rational" as we appear to be or like to think ourselves as being.


Take for instance the whole notion of profit maximization.  The very concept, when not constrained by regulation to prevent social, environmental or economic harm leads to self-destructive behavior onto the employees, the firm, the environment and the economy as a whole.  Fraud, coercion, failure to compensate employees for the value of their work and environmental degradation all play a role in the undoing of the economy and the undoing of the polity and society as a whole.  When wealth gets concentrated in the hands of a few, it warps the political field to bias those who can afford to either hold seats or get access to those who serve in those seats over those who don't have.  Social values become skewed, environmental and human concerns for everyone else fall by the way-side as those who have take and take and take more and more and more away from the general public to feed themselves.  Furthermore, they'll rationalize and justify their behavior, in spite of how caustic it is on the society, the environment, the polity, the economy and themselves in the short and long term.  Personal monetary profit exceeds the overall well being profit of the environment, society and economy.


The role of the government, ideally, is to be responsive to the reasonable needs of the general public and the overall society as a whole (including for the well to do).  Hammurabi said "to bring about the rule of righteousness in the land so that the strong do not harm the weak."  It is through maintaining the balance between the competing forces of society that both are able to live, even if it comes with the monetary expense of the government.


Therefore, while some seemingly non-rational behaviors are the best possible option for the company, it still doesn't change facts about us, our economy and our environment and polity that neoclassicism fails to accept or appreciate.  Marx was correct, as was Adam Smith and David Ricardo.  The market does not reach equilibrium, nor does laissez-faire actually help everyone or anyone without something being present to watch over the environment, the society and the overall economy.  You are seeing the evidence today of the relationship between the societies of the world and their respective governments breaking down; people getting tired of receiving so very little, monetarily and non-monetarily for the sake of so very few having so very much.  The environment is going to collapse, if the society fails to rise.  We will all be put at significant risk for the sake of the profit margins of a couple people, and our civilization will be led into a long, dark age for the sake of some people's false interests and ideological faith.


Silly humans.


Think about it.

Scooped by Alessandro Cerboni!

Crisis Responses and Crisis Management: what can we learn from Biological Networks? | Csermely | Systema: connecting matter, life, culture and technology

Crisis Responses and Crisis Management: what can we learn from Biological Networks? | Csermely | Systema: connecting matter, life, culture and technology | Bounded Rationality and Beyond |
Crisis Responses and Crisis Management: what can we learn from Biological Networks? Abstract
The generality of network properties allows the utilization of the ‘wisdom’ of biological systems surviving crisis events for many millions of years. Yeast protein-protein interaction network shows a decrease in community-overlap (an increase in community cohesion) in stress. Community rearrangement seems to be a cost-efficient, general crisis-management response of complex systems. Inter-community bridges, such as the highly dynamic ‘creative nodes’ emerge as crucial determinants helping crisis survival.
No comment yet.
Scooped by Alessandro Cerboni!

A 90/10 rule that protects all us two-brain investors Paul B. Farrell

A 90/10 rule that protects all us two-brain investors Paul B. Farrell | Bounded Rationality and Beyond |
Here’s how your two-brain portfolio strategy works. Start by separating your assets into two parts and invest them according to two quite different sets of investment rules. 

Yes, you have two brains, competing, keeping secrets, communicating back and forth. Listen to the chatter. You know what I’m talking about.It’s basic human nature, who you are, who we all are. It’s how your mind actually works. Understand it, your investing will improve a lot. And this is exactly the way most Main Street American investors do their investing: We live, work, love and invest using these two, very different, often very separate brains.

No comment yet.
Scooped by Alessandro Cerboni!

Why Positive Thinking May Be Harmful for Some — PsyBlog

Why Positive Thinking May Be Harmful for Some — PsyBlog | Bounded Rationality and Beyond |
Brainwaves of positive and negative thinkers reveal important insight into positive thinking. 

For some people, being told to ‘think positive’ is very hard and may even be doing them harm, according to a new study. The research examined the neural markers of both positive and negative thinking. In the study, 71 women were asked to look at distressing images and put a positive spin on them (Moser et al., 2014).

Women were used exclusively as they are more likely to suffer from high levels of depression and anxiety.

No comment yet.
Scooped by Alessandro Cerboni!

Dan Ariely » Blog Archive The 3 Costs of Multitasking «

Dan Ariely » Blog Archive The 3 Costs of Multitasking « | Bounded Rationality and Beyond |

Are you a task switcher? This is the quintessential rhetorical question, because we all switch between tasks, and we do so often.

While the answer to this question is predictable, clear and almost universal — a more complex and important question is how much time do you think you lose when you engage in task switching?  Like many of our daily challenges, here too there are three different factors to consider.

No comment yet.
Scooped by Alessandro Cerboni!

How politics makes us stupid

How politics makes us stupid | Bounded Rationality and Beyond |

Tere’s a simple theory underlying much of American politics. It sits hopefully at the base of almost every speech, every op-ed, every article, and every panel discussion. It courses through the Constitution and is a constant in President Obama’s most stirring addresses. It’s what we might call the More Information Hypothesis: the belief that many of our most bitter political battles are mere misunderstandings. The cause of these misunderstandings? Too little information — be it about climate change, or taxes, or Iraq, or the budget deficit. If only the citizenry were more informed, the thinking goes, then there wouldn’t be all this fighting.It’s a seductive model. It suggests our fellow countrymen aren’t wrong so much as they’re misguided, or ignorant, or — most appealingly — misled by scoundrels from the other party. It holds that our debates are tractable and that the answers to our toughest problems aren’t very controversial at all. The theory is particularly prevalent in Washington, where partisans devote enormous amounts of energy to persuading each other that there’s really a right answer to the difficult questions in American politics — and that they have it.

Mark Waser's curator insight, April 8, 10:53 AM

I hate the terms "stupid" or "irrational" when they are describing human traits that have evolved because they are better in the long term than any of the known alternatives that criticize them *cough*REDUCTIONISM*cough.

Scooped by Alessandro Cerboni!

10 Most Brilliant Social Psychology Experiments

10 Most Brilliant Social Psychology Experiments | Bounded Rationality and Beyond |
Ten of the most influential social psychology experiments.

“I have been primarily interested in how and why ordinary people do unusual things, things that seem alien to their natures. Why do good people sometimes act evil? Why do smart people sometimes do dumb or irrational things?” –Philip Zimbardo. Like eminent social psychologist Professor Philip Zimbardo (author ofThe Lucifer Effect: Understanding How Good People Turn Evil), I’m also obsessed with why we do dumb or irrational things. The answer quite often is because of other people – something social psychologists have comprehensively shown.

Over the past few months I’ve been describing 10 of the most influential social psychology studies. Each one tells a unique, insightful story relevant to all our lives, every day.

Mark Waser's curator insight, April 8, 10:43 AM

Be sure to read the 10 More article as well . . . .

Scooped by Alessandro Cerboni!

Do Optimists or Pessimists Manage Their Money Better?

Do Optimists or Pessimists Manage Their Money Better? | Bounded Rationality and Beyond |
When it comes to our ability to make healthy and sound financial choices, mindset matters. If you’re an optimist, you’re likely someone who focuses on growth and advancement.

The Happy Medium: The successful entrepreneur blends the best attributes of optimism and pessimism. She is passionate, determined and confident that the future will be brighter. At the same time, she is levelheaded and anticipates risks and plans accordingly because then you are less likely to be caught off guard or to be ill-prepared for headwinds that will most certainly arise.

No comment yet.