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Organizational Survival in the New World: The Intelligent Complex Adaptive System (KMCI Press)

Organizational Survival in the New World: The Intelligent Complex Adaptive System (KMCI Press) | Bounded Rationality and Beyond | Scoop.it

Organizational Survival in the New World: The Intelligent Complex Adaptive System (KMCI Press), Review Alex and David Bennet are ideally suited to bring forth such a wide-ranging and erudite synthesis of complexity and knowledge theories.


Via Gianluca Biotto
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Bounded Rationality and Beyond
News on the effects of bounded rationality in economics and business, relationships and politics
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A general quantum information model for the contextual dependent systems breaking the classical probability law

There exist several phenomena (systems) breaking the classical probability laws. Such systems are contextual dependent adaptive systems. In this paper, we present a new mathematical formula to compute the probability in those systems by using the concepts of the adaptive dynamics and quantum information theory -- quantum channels and the lifting. The basic examples of the contextual dependent phenomena can be found in quantum physics. And recently similar examples were found in biological and psychological sciences. Our novel approach is motivated by traditional quantum probability, but it is general enough to describe aforementioned phenomena outside of quantum physics.
  
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A model of cognitive and operationa memory of organizations in changing worlds

This work analyzes and models the nature and dynamics of organizational memory, as such an essential ingredient of organizational capabilities. There are two sides to it, namely a cognitive side, involving the beliefs and interpretative frameworks by which the organization categorizes the states of the world and its own internal states, and an operational one, including routines and procedures that store the knowledge of how to do things. We formalize both types of memory by means of evolving systems of condition-action rules and investigate their performance in different environments characterized by varying degrees of complexity and non-stationarity. Broadly speaking, in simple and stable environments memory does not matter, provided it satisfies some minimal requirements. In more complex and gradually changing ones more memory is better. However there is some critical level of environmental instability above which forgetfulness is evolutionary superior from the point of view of long term performance. Moreover, above some (modest) complexity threshold stable and robust cognitive categorizations and routinized behavior emerge. 

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Self-Organization, Emergence, and Constraint in Complex Natural Systems

Self-Organization, Emergence, and Constraint in Complex Natural Systems | Bounded Rationality and Beyond | Scoop.it
Contemporary complexity theory has been instrumental in providing novel rigorous definitions for some classic philosophical concepts, including emergence. In an attempt to provide an account of emergence that is consistent with complexity and dynamical systems theory, several authors have turned to the notion ofconstraints on state transitions. Drawing on complexity theory directly, this paper builds on those accounts, further developing the constraint-based interpretation of emergence and arguing that such accounts recover many of the features of more traditional accounts. We show that the constraint-based account of emergence also leads naturally into a meaningful definition of self-organization, another concept that has received increasing attention recently. Along the way, we distinguish between order and organization, two concepts which are frequently conflated. Finally, we consider possibilities for future research in the philosophy ofcomplex systems, as well as applications of the distinctions made in this paper.
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Behavioral Economics of Education: Progress and Possibilities

Behavioral economics attempts to integrate insights from psychology, neuroscience, and sociology in order to better predict individual outcomes and develop more effective policy. While the field has been successfully applied to many areas, education has, so far, received less attention – a surprising oversight, given the field's key interest in long-run decision-making and the propensity of youth to make poor long-run decisions. In this chapter, we review the emerging literature on the behavioral economics of education. We first develop a general framework for thinking about why youth and their parents might not always take full advantage of education opportunities. We then discuss how these behavioral barriers may be preventing some students from improving their long-run welfare. We evaluate the recent but rapidly growing efforts to develop policies that mitigate these barriers, many of which have been examined in experimental settings. Finally, we discuss future prospects for research in this emerging field.

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Behavioral Economics

I

In recent years, behavioral economics has emerged as a bona fide subdiscipline of economics (cf. [Rabin, 2002, 657–658; Sent, 2004, 735–737]). At the time of writ-ing, virtually all top U.S. economics departments have behavioral economists onstaff. Behavioral papers appear in prime journals, and the number of doctoral dissertations, conferences, hirings, tenurings, etc. is increasing rapidly. Meanwhile,behavioral economists have been awarded the highest recognitions: MacArthur Fel-lowships, the John Bates Clark Medal, and most prominently, the Nobel MemorialPrize. Although a comparatively young field, it is possible to discern relativelydistinct phases in the development of behavioral economics. The first phase, whichwe will argue began in 1980, involved identifying anomalies — commonly observedeconomic phenomena that were inconsistent with standard theory — and explain-ing them in relatively loose psychological terms. The second, which began ap-proximately a decade later, incorporated behavioral assumptions into increasinglysophisticated, mathematically rigorous models of economic phenomena at boththe micro and the macro levels [Rabin, 2002, 658]. The third phase, once againunfolding approximately a decade later, has involved the systematic application of behavioral economics to issues of public policy (see, e.g., [McCaffery and Slemrod,2006; Diamond and Vartiainen, 2007]).

 

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Markets Hitting Highs: Unseen Contaminants to Rationality

Markets Hitting Highs: Unseen Contaminants to Rationality | Bounded Rationality and Beyond | Scoop.it
Categories: Alternative Investments, Behavioral Finance, Drivers of Value, Economics,Leadership, Management & Communication Skills, Portfolio Management, Standards, Ethics & Regulations (SER) Suddenly, proponents of the urban myth that our drinking water is poisoned seem to be correct. Scientists have discovered traces of the harmful and addictive drug cocaine in the United Kingdom’s water supply even after it had been intensively purified. According to one newspaper headline, “Cocaine Use in Britain Is So High It Has Contaminated Drinking Water.” But this is small fry compared to the scale of contamination of US drinking water. With 10% of Americans now taking antidepressantsand half on prescribed medications, “your tap water is probably laced with antidepressants” and harmful chemicals according to one report. Worse still, studies are blaming contaminated water for physical and behavioral changes, such as fish losing interest in their food, or even becoming “intersex” fish whereby male fish grow ovaries and start laying eggs. As markets hit new highs, we explore whether rational economic man, the bedrock of many financial theories and valuation models, is subject to unseen and adverse physiological influences.
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Neurogenesis: How To Grow New Brain Cells - PsyBlog

Neurogenesis: How To Grow New Brain Cells - PsyBlog | Bounded Rationality and Beyond | Scoop.it
Adults can still grow new brain cells -- neurogenesis -- but what are they for?

For a long time scientists believed that neurogenesis was impossible: adults had all the brain cells they were ever going to have.

Now we know that’s not true.

In fact, we continue to grow new brain cells into adulthood.

The race is on to find out what these brain cells are for and how we can grow more of them.

A new review of the scientific literature, published in the journal Trends in Cognitive Sciences, argues that the growth of new cells aids adaptation to the environment (Opendak & Gould, 2015).

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Probabilistic cost efficiency and bounded rationality in the newsvendor model

Abstract: In this paper we establish a link between probabilistic cost efficiency and bounded rationality in the newsvendor model. This establishes a framework where bounded rationality can be examined rigorously by statistical methods. The paper offers a relatively deep theoretical analysis of underorders/overorders in the newsvendor model. The theory is supported by empirical findings from our analysis of empirical data from laboratory experiments. In particular, we observe that underorders are systematically larger than overorders, an issue that our theoretical model explains. From statistical tests we conclude that all variability in our data can be explained by probabilistic cost efficiency and risk aversion.
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Decisions are reached in the brain by the same method used to crack the Nazi Enigma code

Decisions are reached in the brain by the same method used to crack the Nazi Enigma code | Bounded Rationality and Beyond | Scoop.it
The highlight of the award winning film, "The Imitation Game", is when Alan Turing and colleagues devise an ingenious statistical method that eventually helped decipher the Nazis' Enigma code. This breakthrough allowed Allied intelligence to read previously unavailable German military positions and actions, vastly shortening World War II. Interestingly, a team of neuroscientists at Columbia University found that more or less the same statistical method applied by Turing and co. is used by the brain to make any kind of decision, be it going left instead of right in an intersection or placing a higher bet during a high raise power game instead of folding.
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Why team bonuses are more effective

Why team bonuses are more effective | Bounded Rationality and Beyond | Scoop.it
Companies get it wrong when they think workers simply calculate the tradeoff between effort and money. 

When my kids were small, we participated in a neighborhood carpool. One morning, on my turn, my son had to stay at home due to an illness, and I was going to drive only the neighbors' children to school. The routine morning phone call to my mom ended with the following request: "Drive safely! Those are someone else's kids!"

Crazy as it sounded, my mom was conveying a commonly held moral concern—that I should be more respectful of things that are dear to my friend than dear to me. Most of us, surprisingly, share this stance. And it’s not necessarily because we are altruists, but because it serves us well from a social point of view.

Imagine, as another example, that you forget to pay your parking ticket and incur a $60 added fine. Now suppose instead that you forget to pay your friend's ticket (who has asked you to do so since he is away on vacation) and you incur that same fine for your friend. Which would make you feel worse?

 
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Misbehaving- The Making of Behavioural Economics - how to: academy

Misbehaving- The Making of Behavioural Economics  - how to: academy | Bounded Rationality and Beyond | Scoop.it

This talk for the How To Academy coincides with the publication of Richard Thaler’s new book on behavioural economics. Richard Thaler has spent his career studying the radical notion that the central agents in the economy are humans—predictable, error-prone individuals. Traditional economics assumes rational actors. Early in his research, Thaler realized these Spock-like automatons were nothing like real people. Whether buying an alarm clock, selling football tickets, or applying for a mortgage, we all succumb to biases and make decisions that deviate from the standards of rationality assumed by economists. In other words, we misbehave. Dismissed at first by economists as an amusing sideshow, the study of human miscalculations and their effects on markets now drives efforts to make better decisions in our lives, our businesses, and our governments. Coupling recent discoveries in human psychology with a practical understanding of incentives and market behaviour, Thaler will enlighten us about how to make smarter decisions in an increasingly mystifying world, revealing how behavioural economic analysis opens up new ways to look at everything.

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Your Brain Is Primed To Reach False Conclusions

Your Brain Is Primed To Reach False Conclusions | Bounded Rationality and Beyond | Scoop.it

Paul Offit likes to tell a story about how his wife, pediatrician Bonnie Offit, was about to give a child a vaccination when the kid was struck by a seizure. Had she given the injection a minute sooner, Paul Offit says, it would surely have appeared as though the vaccine had caused the seizure and probably no study in the world would have convinced the parent otherwise. (The Offits have such studies at the ready — Paul is the director of the Vaccine Education Center at the Children’s Hospital of Philadelphia and author of“Deadly Choices: How the Anti-Vaccine Movement Threatens Us All.”) Indeed, famous anti-vaxxer Jenny McCarthy has said her son’s autism and seizures are linked to “so many shots” because vaccinations preceded his symptoms.

But, as Offit’s story suggests, the fact that a child became sick after a vaccine is not strong evidence that the immunization was to blame. Psychologists have a name for the cognitive bias that makes us prone to assigning a causal relationship to two events simply because they happened one after the other: the “illusion of causality.” A study recently published in the British Journal of Psychology investigates how this illusion influences the way we process new information. Its finding: Causal illusions don’t just cement erroneous ideas in the mind; they can also prevent new information from correcting them.

 
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The quantum-like description of the dynamics of party governance in the US political system

This paper is devoted to the application of the mathematical formalism of quantum mechanics to social (political) science. By using the quantum dynamical equations we model the process of decision making in US elections. The crucial point we attempt to make is that the voter's mental state can be represented as a superposition of two possible choices for either republicans or democrats. However, reality dictates a more complicated situation: typically a voter participates in two elections, i.e. the congress and the presidential elections. In both elections he/she has to decide between two choices. This very feature of the US election system requires that the mental state is represented by a 2-qubit state corresponding to the superposition of 4 different choices (e.g. for republicans in the congress; for the president as a democrat). The main issue of this paper is to describe the dynamics of the voters' mental states taking in account the mental and socio- political environment. What is truly novel in this paper is that instead of using Schr\"odinger's equation to describe the dynamics in an absence of interactions, we here apply the quantum master equation. This equation describes quantum decoherence, i.e., resolution from superposition to a definite choice.
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Alzheimer's Protein Appears At This Incredibly Young Age - PsyBlog

Alzheimer's Protein Appears At This Incredibly Young Age - PsyBlog | Bounded Rationality and Beyond | Scoop.it

The young age at which amyloid protein, a hallmark of Alzheimer’s, begins to appear in the brain.

 

Amyloid protein, which is a hallmark of Alzheimer’s disease, has been detected in people as young as 20, a new study finds.

This is much earlier than any scientists previously thought.

Amyloid protein is strongly associated with Alzheimer’s disease.

It eventually forms in clumps outside the neurons.

Professor Changiz Geula, who led the study, said:

“Discovering that amyloid begins to accumulate so early in life is unprecedented.

This is very significant.

We know that amyloid, when present for long periods of time, is bad for you.”

 

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The leadership of emergence - A complex systems leadership theory of emergence at successive organizational levels

The leadership of emergence - A complex systems leadership theory of emergence at successive organizational levels | Bounded Rationality and Beyond | Scoop.it

Complexity science reframes leadership by focusing on the dynamic interactions between all individuals, explaining how those interactions can, under certain conditions, produce emergent outcomes. We develop aLeadership of Emergence using this approach, through an analysis of three empirical studies which document emergence in distinct contexts. Each of these studies identifies the same four “conditions” foremergence: the presence of a Dis-equilibrium state, Amplifying actions, Recombination/“Self-organization”, and Stabilizing feedback. From these studies we also show how these conditions can be generated through nine specific behaviors which leaders can enact, including: Disrupt existing patterns through embracing uncertainty and creating controversy, Encourage novelty by allowing experiments and supporting collective action, Provide sense-making and sense-giving through the artful use of language and symbols, and Stabilize the system by Integrating local constraints. Finally, we suggest ways for advancing a meso-model of leadership, and show how our findings can improve complexity science applications in management.

 
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Experimental Economics in Virtual Reality

Recent developments in virtual reality (VR) technology have the potential to revolutionize the way economists do experimental research. With Oculus’ light and affordable head mounted display (HMD) human subjects can literally move and use objects in virtual spaces and interact with others. This technology as well as surround-screen projection systems like CAVEs (Cruz-Neira et al. 1994), allow the experimenter to observe economically relevant behavior and social interaction in a highly immersive and at the same time tightly controlled virtual environment. More than other disciplines, economics focuses on the evaluation of counterfactual scenarios which help to analyze strategic decisions and their efficiency effects. In this note, by means of three examples, we illustrate how experiments in highly IVEs can add value to experimental economics and benefit economic research.

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Aswath Damodaran: The Most Reliable Investment Valuations Balance Numbers and Narratives

Aswath Damodaran: The Most Reliable Investment Valuations Balance Numbers and Narratives | Bounded Rationality and Beyond | Scoop.it

When it comes to valuing stocks, the most reliable valuations come from imaginative number crunchers and disciplined storytellers, says Aswath Damodaran. And too often pure “numbers” people drift off into what he calls “spreadsheet nirvana.” Similarly, investors who focus purely on the narrative of a potential investment run the risk of quickly “veering from reality to fantasy.”

Damodaran, who teaches valuation and corporate finance at the Stern School of Business at New York University (NYU), made these remarks at the recent CFA Institute Equity Research and Valuation Conference 2014 inBoston, where he urged attendees to bridge the gap between numbers and narratives, insisting that the best valuations are not just “a collection of numbers, but a story connected to numbers.”

Damodaran acknowledged the critical role that numbers play in the valuation process, but he warned that they should be used judiciously. Due to mission creep, he thinks accounting statements have become increasingly difficult to navigate and fair value accounting has become an oxymoron, allowing for bias and the illusion of objectivity in valuations. Similarly, the emergence of Big Data as an input into sophisticated valuation models driven by “Excel Ninjas,” and the accompanying notion that “more is better,” has its limits. Adding an extra decimal place to your model’s projected operating profit margin conveys a false sense of precision with no meaningful improvement in outcomes.

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How Does Your Ego Impact Your Decision Making?

How Does Your Ego Impact Your Decision Making? | Bounded Rationality and Beyond | Scoop.it
Do you know of anyone who has suppressed bad news to preserve their career or reputation?Or told the boss what they wanted to hear instead of the truth?Or overlooked a red flag to preserve the sense of harmony in the workplace?Most often ego is catalogued as 'good' or 'bad', but what if it's simply about your relationship with yourself? At the heart of the matter your ego, your self-esteem, self-worth and personal sense of security, chaperons your decision-making. Does the business culture have an impact on your ego?It’s absurd to pretend that the business culture doesn’t have an
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Empirical test of a quantum probability model for question order effects found in survey research

Abstract This article develops and empirically tests a quantum probability model for question order effects observed in survey research. First, the general theoretical assumptions are  presented; second, an exact parameter free prediction is derived; third, the results from four surveys and one experiment are used to empirically test the prediction; fourth, a new index is derived to measure similarity between questions; finally, we describe the main conditions under which order effects are predicted to occur. In conclusion, quantum theory, initially invented to explain order effects on measurements in physics, provides a powerful explanation for order effects of survey questions too

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Social Nudges: Their Mechanisms and Justification

In this paper I argue that the use of social nudges, policy interventions to induce voluntary cooperation in social dilemma situations, can be defended against two ethical objections which I call objections from coherence and autonomy. Specifically I
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Trust, Cooperative Behavior And Economic Success: When Trust Is The Capital Of The Person?

Abstract: This article presents the results of study dedicated to the interrelation of trust, cooperative behavior and the size of the winning prize in the multi-way decision modified prisoners’ dilemma. The experiment was organized using a specially designed computer program. The study involved six groups of participants and each group consisted of 7 players. The experiment consisted of a series of 15 rounds and included preliminary and final testing. The study found that cooperative behavior within the members in the group had fallen during 11 rounds, but there was a tendency to improve it. The trust level of an individual and his/her choice of cooperative strategy in the first series of the experiment are interrelated. Generalized trust is a rather stable construct, but it does not remain unchanged with an actual reduction of cooperative behavior. 
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Yes, You’re Irrational, and Yes, That’s OK - Issue 21: Information - Nautilus

Yes, You’re Irrational, and Yes, That’s OK - Issue 21: Information - Nautilus | Bounded Rationality and Beyond | Scoop.it

It’s all about leveraging the unconscious factors that drive 95 percent of consumer decision-making.

It has created a large and growing list of ways that humans diverge from economic rationality. Researchers have found that all sorts of logically inconsequential circumstances—rain, sexual arousal (induced and assessed by experimenters with Saran-wrapped laptops), or just the number “67” popping up in conversation—can alter the value we assign to things. For example, with “priming effects,” irrelevant or unconsciously processed information prompts people to assign value by association (seeing classrooms and lockers makes people slightly more likely to support school funding). With “framing effects,” the way a choice is presented affects people’s evaluation: Kahneman and Tversky famously found that people prefer a disease-fighting policy that saves 400 out of 600 people to a policy that lets 200 people die, though logically the two are the same. While mainstream economists are still wrestling with these ideas, outside of academe there is little debate: The behaviorists have won.

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Only ten midges needed to make a swarm

Only ten midges needed to make a swarm | Bounded Rationality and Beyond | Scoop.it
High-speed cameras reveal when insects become self-organizing. 

To most people, a cloud of midges is an annoyance. To Nicholas Ouellette it is the key to a mysterious animal behaviour — the swarm.

Ouellette, who works on complex systems at Yale University in New Haven, Connecticut, and his colleague James Puckett, have found that swarms of these insects become self-organizing when their numbers reach just ten individuals.

Their paper, published on 13 August in Journal of the Royal Society Interface1, is part of a small but growing area of research producing data from real swarms to inform models of this behaviour.

Ouellette and Puckett set up laboratory colonies of Chironomus riparius midges, which live for only a few days after reaching adulthood and tend to fly only at dawn or dusk.

“A lot of people will say a swarm is just a whole bunch of insects,” says Ouellette. “I would like to say a swarm is somehow collective and self-organizing.”

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Q & A With Richard Thaler On What It Really Means To Be A "Nudge"

Q & A With Richard Thaler On What It Really Means To Be A "Nudge" | Bounded Rationality and Beyond | Scoop.it
Nudge is one of the most important and influential books on behavioral science and public policy I’ve ever read. Co-authored by economist Richard Thaler and lawyer Cass Sunstein, the book lays out the rationale for adopting policies designed to make it more likely that people will act in their own best interests rather than, say, spend money they shouldn’t spend or eat food they shouldn’t consume. In the book, Thaler and Sunstein discuss how recent advances in behavioral science should inform our attitudes towards rational decision making. Specifically, these behavioral science findings show that people don’t always make rational decisions, raising questions about when or whether outsiders—like governments or employers–should step in to help people avoid making bad choices.

But has enthusiasm for the book led people to see nudges where they don’t exist? That was the question I posed in a recent post, where I argued that it was wrong to call a well-designed traffic light a nudge: “Not all good design, even good design that influences behavior, is a nudge,” I wrote. “A well-designed prison cell is more likely to deter prisoners from trying to escape than a poorly designed one. But that does not make it a nudge.”

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