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Odds Are, It's Wrong - Science News

Odds Are, It's Wrong - Science News | Bounded Rationality and Beyond | Scoop.it

Science fails to face the shortcomings of statistics... 

For better or for worse, science has long been married to mathematics. Generally it has been for the better. Especially since the days of Galileo and Newton, math has nurtured science. Rigorous mathematical methods have secured science’s fidelity to fact and conferred a timeless reliability to its findings.

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News on the effects of bounded rationality in economics and business, relationships and politics
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Mentalism versus behaviourism in economics: a philosophy-of-science perspective

Abstract

Behaviourism is the view that preferences, beliefs, and other mental states in socialscientific theories are nothing but constructs re-describing people’s behaviour. Mentalism is the view that they capture real phenomena, on a par with the unobservables in science, such as electrons and electromagnetic fields. While behaviourism has gone out of fashion in psychology, it remains influential in economics, especially in ‘revealed preference’ theory. We defend mentalism in economics, construed as a positive science, and show that it fits best scientific practice. We distinguish mentalism from, and reject, the radical neuroeconomic view that behaviour should be explained in terms of brain processes, as distinct from mental states.

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Unpacking the Principle of Openness in EU Law: Transparency, Participation and Democracy by Alberto Alemanno :: SSRN

Unpacking the Principle of Openness in EU Law: Transparency, Participation and Democracy by Alberto Alemanno :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
The purpose of this article is to shed some light on the emerging, yet largely undefined, principle of openness in EU law. After addressing the semantic confusion existing between openness and transparency, it attempts – through a textual and systemic interpretation of their respective legal basis – to identify the normative content of the EU turn to openness. It then moves to explore the principle’s potential for attaining its declared Treaty-sanctioned objectives: promoting good governance and ensuring the participation of civil society in the democratic life of the Union. It illustrates that, although openness largely maintains an instrumental rationale – aimed at enhancing the quality of the regulatory outcome rather than at promoting a more inclusive process –, the institutional, substantive and societal landscapes surrounding its operation have changed in recent times. It demonstrates that these alterations may help to shift the understanding of openness in the EU away from a specific, unidirectional, bottom-up right of access to information to a much broader, proactive and top-down duty of the EU administration to genuinely open its vault of information to the public and create new avenues of participation for civil societies and other organised interests. The changing nature of the openness rights accompanied by the growing demand for more active participation inherent to our times is set to reinvigorate civic life and, more importantly, to ensure political legitimacy grounded in democratic values. 

 

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When did same-sex marriage laws become effective by state? - Decision Science News

When did same-sex marriage laws become effective by state? - Decision Science News | Bounded Rationality and Beyond | Scoop.it
We thought we'd look when various states allowed same-sex couples to marry (if they did at all) before today.

In light of the good news today that the Supreme Court ruled that same-sex couples have the right to marry in the United States, we thought we’d look at when same-sex marriage laws became effective by state (if they did at all) before today.

Noting that same sex marriage is a dividing issue between the left and right in the US, we thought we’d compare the date of when same-sex marriage laws become effective in each state with each state’s Republican (two-party) vote share in 2012. Results are above.

Note that California’s same-sex marriage law was effective in 2008, then it was overturned, and then made effective again in 2013. We went with the earlier date because you’ve got to chose something.

The next question is “what about the states that were added by the Supreme Court decision today”? We made a second plot, below, in which we put today’s date for those states in the “effective date” column. The result is pretty much the same.

 
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The Behavioral Foundations of Public Policy: Eldar Shafir: 9780691137568: Amazon.com: Books

The Behavioral Foundations of Public Policy

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In recent years, remarkable progress has been made in behavioral research on a wide variety of topics, from behavioral finance, labor contracts, philanthropy, and the analysis of savings and poverty, to eyewitness identification and sentencing decisions, racism, sexism, health behaviors, and voting. Research findings have often been strikingly counterintuitive, with serious implications for public policymaking. In this book, leading experts in psychology, decision research, policy analysis, economics, political science, law, medicine, and philosophy explore major trends, principles, and general insights about human behavior in policy-relevant settings. Their work provides a deeper understanding of the many drivers--cognitive, social, perceptual, motivational, and emotional--that guide behaviors in everyday settings. They give depth and insight into the methods of behavioral research, and highlight how this knowledge might influence the implementation of public policy for the improvement of society.


This collection examines the policy relevance of behavioral science to our social and political lives, to issues ranging from health, environment, and nutrition, to dispute resolution, implicit racism, and false convictions. The book illuminates the relationship between behavioral findings and economic analyses, and calls attention to what policymakers might learn from this vast body of groundbreaking work.


Wide-ranging investigation into people's motivations, abilities, attitudes, and perceptions finds that they differ in profound ways from what is typically assumed. The result is that public policy acquires even greater significance, since rather than merely facilitating the conduct of human affairs, policy actually shapes their trajectory.

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Machine Nudging

Machine Nudging | Bounded Rationality and Beyond | Scoop.it

On the train from London to Brussels, the passenger sitting next to me suddenly gets agitated. I look at him puzzled, as this is a wagon entirely populated by people traveling for business and sudden noises or exuberant behaviour are noticeable like being dressed in a pink suit. My travel companion apologises and adds:”Damn, I forgot my phone in the station lounge. It’s a tragedy, it contains all the reminders for my pills”. After such statement, I can only be sympathetic.

Lately, I have been working a great deal with computer scientists and when I end up chatting about behavioural research and nudges, they usually look unimpressed. They often reply that they have been nudging for a long time in the design of user interfaces. Of course, it is not as simple as that, but I have been amazed by how much of the scientific literature on usability and human machine interaction contains overlaps with decision making research, in particular about the use of nudges.

As the online world becomes the most common and frequent context of information choice architecture in developed countries, the concepts and experience developed in decades of research related to improve usability of interfaces are a rich resource. In a way, traditional usability research used crude models of human decision making processes, but at the same time made large use of small scale empirical tests that informed them about valid solutions without the need of a sophisticated theory of human decision making.

 

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Richard Thaler, the Economist Who Realised How Crazy Humans Are

Richard Thaler, the Economist Who Realised How Crazy Humans Are | Bounded Rationality and Beyond | Scoop.it
Richard Thaler focused on the things that people did that challenged economic models of rational choice I’m not sure we’re living in an age of disruption, or just an age that badly wants to think itself disruptive, but either way there’s been a lot of rethinking going on the past decade or so. The biggest upheavals have come in industries in which managers have always made decisions more or less by gut instinct: political campaigns, health care, military campaigns, professional sports. The obvious cause of the turmoil is the availability of ever-cheaper computing power: People looking for an edge in any business can now gather and analyse all sorts of previously unobtainable or unanalysable data. The less obvious cause is an idea, that the data might trump the expertise of managers. People (even experts) and industries (even old ones) can make big, systematic mistakes. You don’t set out to find better ways to value professional baseball players if you believe that the market already knows everything there is to know about their value. - See more at: http://www.businessweekme.com/Bloomberg/newsmid/190/newsid/702#sthash.PXDYOQnb.dpuf
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How Do Consumers Choose Health Insurance? – An Experiment on Heterogeneity in Attribute Tastes and Risk Preferences

Abstract: Recent health policy reforms try to increase consumer choice. We use a laboratory experiment to analyze consumers' tastes in typical contract attributes of health insurances and to investigate their relationship with individual risk preferences. First, subjects make consecutive insurance choices varying in the number and types of contracts offered. Then, we elicit individual risk preferences according to Cumulative Prospect Theory. Applying a latent class model to the choice data, reveals five classes of consumers with considerable heterogeneity in tastes for contract attributes. From this, we infer distinct behavioral strategies for each class. The majority of subjects use minimax strategies focusing on contract attributes rather than evaluating probabilities in order to maximize expected payoffs. Moreover, we show that using these strategies helps consumers to choose contracts, which are in line with their individual risk preferences. Our results reveal valuable insights for policy makers of how to achieve efficient consumer choice.

#neuroeconomy

http://econstor.eu/bitstream/10419/106203/1/815300425.pdf

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Behavioral Consumers in Industrial Organizatio

Abstract: This paper succinctly overviews three primary branches of the industrial organization literature with behavioral consumers. The literature is organized according to whether consumers: (1) have non-standard preferences, (2) are overconfident or otherwise biased such that they systematically misweight different dimensions of price and other product attributes, or (3) fail to choose the best price due to suboptimal search, confusion comparing prices, or excessive inertia. The importance of consumer heterogeneity and equilibrium effects are also highlighted along with recent empirical work.

http://fmwww.bc.edu/EC-P/wp879.pdf

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Learning about these 3 psychological biases could forever change how you go grocery shopping

Learning about these 3 psychological biases could forever change how you go grocery shopping | Bounded Rationality and Beyond | Scoop.it

You've been warned. 

Don't trust your grocer.

While they may seem reliable, the research suggests that grocery stores are only matched by casinos in their ability to make you do things against your own interest.

The unsettling truth about buying groceries is that from the second you walk through the breezy automatic doors, your brain comes face to face with a continuous, overwhelming desire to succumb to its most basic psychological responses.

Nearly all rational decision making goes out the window.

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The Hidden Danger in Product Bundles - Neuromarketing

The Hidden Danger in Product Bundles - Neuromarketing | Bounded Rationality and Beyond | Scoop.it
Does grouping products together into a single-price bundle increase the perception of value? Most of us would answer “yes,” but surprising new research shows there is at least one condition where such grouping can actually reduce the apparent value. In fact, the bundle may be seen as worth not just less than the sum of its parts, but less than the individual product
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Study: Social learning, not range of environments, best explains span of human behavior

Study: Social learning, not range of environments, best explains span of human behavior | Bounded Rationality and Beyond | Scoop.it

This may help explain why we wear pants…new study suggests social learning (that is, culture), not range of environments, best explains span of human behavior http://ow.ly/Oru6R People from different societies eat different foods, use different technologies, follow different social norms, and believe in different gods. The behavioral variation exhibited by the human species is unmatched in the animal world. 

For more than a century, scholars have debated whether this span of behavior is due to the unusually wide range of environments we humans inhabit or to our unique reliance on social learning, which enables members of different societies to inherit different cultural traditions.

At stake in this debate is to what extent human uniqueness is driven by our large brain and the intelligence that allows us to adapt to different environments or by our capacity for culture. 

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The Emergence of Law and Behavioural Science: A European Perspective by Anne-Lise Sibony, Alberto Alemanno :: SSRN

The Emergence of Law and Behavioural Science: A European Perspective by Anne-Lise Sibony, Alberto Alemanno :: SSRN | Bounded Rationality and Beyond | Scoop.it

Nudge and the Law explores the legal implications of the emergent phenomenon of behaviourally informed intervention. It focuses on the challenges and opportunit. Abstract: Nudge and the Law explores the legal implications of the emergent phenomenon of behaviourally informed intervention. It focuses on the challenges and opportunities it may offer to the policymaking of the European Union. This dual focus on law and on Europe characterises our endeavour. This volume has been structured by taking as a point of the departure the current nudging debate, which mainly comprises two strands of enquiry: when is it legitimate for States to use psychology to inform policy? (the legitimacy debate) and, to the extent that it is legitimate, how can behavioural insights in practice be incorporated into the decision making processes? (the practicability debate). Against this backdrop we brought together scholars who could analyse what behavioural insights might bring to EU law, both at a horizontal level and at a sectoral level. This volume endeavours to present the results of their research in a manner that is accessible both to EU law specialists who are not yet familiar with behavioural sciences and to behavioural lawyers who are not specialists in EU law.

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Nudge theory and cashew nuts

Nudge theory and cashew nuts | Bounded Rationality and Beyond | Scoop.it
Richard Thaler talks about behavioural economics and his new book Misbehaving.

Economist Richard H. Thaler’s bestseller Nudge: Improving Decisions about Health, Wealth and Happiness, co-authored with Cass R. Sunstein, shook up the world of economics in much the same way as great entrepreneurs take on incumbent businesses, and influenced world leaders including Barack Obama and David Cameron. To illustrate how humans require ‘nudges’ to improve their behaviour, Thaler famously cites how he once removed a bowl of cashew nuts from his dinner party guests to stop them filling up before dinner. “People were (a) happy, and (b) they realized their reaction conflicted with traditional economic theory,” he recently explained to Time magazine.

 
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When Does Workplace Wellness Become Coercive?

When Does Workplace Wellness Become Coercive? | Bounded Rationality and Beyond | Scoop.it
A small but growing number of employers tie financial incentives to losing weight and exercising. The cost of nonparticipation can be so high that critics question whether workers have a true choice.
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Autopoiesis, Structural Coupling and Cognition: A history of these and other notions in the Biology of Cognition

Autopoiesis, Structural Coupling and Cognition: A history of these and other notions in the Biology of Cognition | Bounded Rationality and Beyond | Scoop.it

Humberto Maturana. My intent in this essay is to reflect on the history of some biological notions such asautopoiesis, structural coupling, and cognition, that I have developed since the early 1960’s as a result of my work on visual perception and the organization of the living. No doubt I shall repeat things that I have said in other publications (Maturana & Varela, 1980, 1988), and I shall present notions that once they are said appear as obvious truisms. Moreover, I shall refine or expand the meaning of such notions, or even modify them. Yet, in any case, the reader is not invited to attend to the truisms, or to what seems to be obvious, rather he or she is invited to attend to the consequences that those notions entail for the understanding of cognition as a biological process. After all, explanations or  demonstrations always become self evident once they are understood and accepted, and the purpose of this essay is the expansion of understanding in all dimensions of human existence.

 
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Scarcity: Why Having Too Little Means So Much: Sendhil Mullainathan, Eldar Shafir

Scarcity: Why Having Too Little Means So Much

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A surprising and intriguing examination of how scarcity--and our flawed responses to it--shapes our lives, our society, and our culture

Why do successful people get things done at the last minute? Why does poverty persist? Why do organizations get stuck firefighting? Why do the lonely find it hard to make friends? These questions seem unconnected, yet Sendhil Mullainathan and Eldar Shafir show that they are all examples of a mind-set produced by scarcity.

Drawing on cutting-edge research from behavioral science and economics, Mullainathan and Shafir show that scarcity creates a similar psychology for everyone struggling to manage with less than they need. Busy people fail to manage their time efficiently for the same reasons the poor and those maxed out on credit cards fail to manage their money. The dynamics of scarcity reveal why dieters find it hard to resist temptation, why students and busy executives mismanage their time, and why sugarcane farmers are smarter after harvest than before. Once we start thinking in terms of scarcity and the strategies it imposes, the problems of modern life come into sharper focus.

Mullainathan and Shafir discuss how scarcity affects our daily lives, recounting anecdotes of their own foibles and making surprising connections that bring this research alive. Their book provides a new way of understanding why the poor stay poor and the busy stay busy, and it reveals not only how scarcity leads us astray but also how individuals and organizations can better manage scarcity for greater satisfaction and success.

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Simpler: The Future of Government - Kindle edition by Cass R. Sunstein. Politics & Social Sciences Kindle eBooks @ Amazon.com.

Simpler government arrived four years ago. It helped put money in your pocket. It saved hours of your time. It improved your children’s diet, lengthened your life span, and benefited businesses large and small. It did so by issuing fewer regulations, by insisting on smarter regulations, and by eliminating or improving old regulations. Cass R. Sunstein, as administrator of the most powerful White House office you’ve never heard of, oversaw it and explains how it works, why government will never be the same again (thank goodness), and what must happen in the future. 

Cutting-edge research in behavioral economics has influenced business and politics. Long at the forefront of that research, Sunstein, for three years President Obama’s “regulatory czar” heading the White House Office of Information and Regulatory Affairs, oversaw a far-reaching restructuring of America’s regulatory state. In this highly anticipated book, Sunstein pulls back the curtain to show what was done, why Americans are better off as a result, and what the future has in store. 

The evidence is all around you, and more is coming soon. Simplified mortgages and student loan applications. Scorecards for colleges and universities. Improved labeling of food and energy-efficient appliances and cars. Calories printed on chain restaurant menus. Healthier food in public schools. Backed by historic executive orders ensuring transparency and accountability, simpler government can be found in new initiatives that save money and time, improve health, and lengthen lives. Simpler: The Future of Government will transform what you think government can and should accomplish.
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Rationality and Emotional Biases. Do You Know What They Are?

Rationality and Emotional Biases. Do You Know What They Are? | Bounded Rationality and Beyond | Scoop.it

A common interpretation in behavioural finance is that rationality is the result of a pure cognitive process which can be behaviourally biased. In general, the bias has a negative connotation because it produces a distortion in the calculation of an outcome. When a decision-making process is cognitively biased the outcome leads to sub-optimal results or judgement errors. Roughly speaking, the subject might make irrational choices due to faulty reasoning, statistical errors, lack of information, memory errors, and the like. Differently, when the decision is emotionally biased, it means that the cognitive process has been influenced by feelings, affects, moods, and so on (let’s label these states “emotions”). This leads us to irrational decisions or actions. (Pompian 2006, Livet 2010, Mazzoli and Marinelli 2011, Fairchild 2014)

In this interpretation, cognitive and emotional processes are discrete and produced by two different systems: a cognitive and an emotional system. While cognitive biases are influences that affect rationality from within the cognitive system, emotional biases refer to those influences that affect the cognitive system from outside.

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Miklos Szilagyi's curator insight, June 25, 1:33 AM

"...Wide-ranging investigation into people's motivations, abilities, attitudes, and perceptions finds that they differ in profound ways from what is typically assumed. The result is that public policy acquires even greater significance, since rather than merely facilitating the conduct of human affairs, policy actually shapes their trajectory..."

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New Book Spotlights Behavioral Finance | Squared Away Blog

New Book Spotlights Behavioral Finance | Squared Away Blog | Bounded Rationality and Beyond | Scoop.it

Did you know that an investor may be more likely to hold on to a money-loser if he bought it himself than if he inherited it? That people born with the “warrior gene” will take more risks? Or that trust is essential to whether individuals prepare for retirement?

A new edited volume, “Investor Behavior: the Psychology of Financial Planning and Investing,” is a thorough tour of the research on these and other aspects of behavioral finance.  The book was compiled for financial planners, investment professionals, academics, and finance students and edited by two finance professors, H. Kent Baker of American University’s Kogod School of Business and Victor Ricciardi of Goucher College.

The field of behavioral finance is gaining traction as financial experts increasingly recognize that psychology, sociology,neurology and other fields may have something to say about why people behave the way they do around money.

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Is it a Fallacy to Believe in the Hot Hand in the NBA Three-Point Contest?

Abstract: The hot hand fallacy refers to a belief in the atypical clustering of successes in sequential outcomes when there is none. It has long been considered a massive and widespread cognitive illusion with important implications in economics and Finance. The strongest evidence in support of the fallacy remains that from the canonical domain of basketball, where the widespread belief in the existence of hot hand shooting, among expert players and coaches, has been found to have no evidential basis (Gilovich, Vallone, and Tversky 1985). A prominent exhibit of the fallacy is Koehler and Conley (2003)'s study of the NBA Three-Point Contest (1994-1997), a setting which is viewed as ideal for a test of the hot hand (Thaler and Sunstein 2008). In this setting, despite the well-known beliefs of players, coaches, and fans alike, Koehler and Conley and no evidence of hot hand shooting. In the present study, we collect 29 years of shooting data from television broadcasts of the NBA Three-Point Contest (1986-2015), and apply a statistical approach developed in Miller and Sanjurjo (2014), which is more powered, contains an improved set of statistical measures, and corrects for a substantial downward bias in previous estimates of the hot hand effect. In contrast with previous studies, but consistent with Miller and Sanjurjo (2014)'s recent Finding of substantial hot hand shooting in all previous controlled shooting studies (including that from the original study of Gilovich, Vallone, and Tversky), we and substantial evidence of hot hand shooting in the NBA Three-Point Contest. This leaves little doubt that the hot hand not only exists, but actually occurs regularly. Thus, belief in the hot hand, in principle, is not a fallacy. 

#neuroeconomy

ftp://ftp.igier.unibocconi.it/wp/2015/548.pdf 

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Neuroscientists pinpoint 3 irresistible impulses that influence everything we buy

Neuroscientists pinpoint 3 irresistible impulses that influence everything we buy | Bounded Rationality and Beyond | Scoop.it

This doesn't mean you're off the hook. 

You might think that you're completely in control of your buying decisions.

Neuroscientists disagree.

In "Cool: How the Brain's Hidden Quest for Cool Drives Our Economy and Shapes Our World," Steven Quartz and Anette Asp explain that there are three "pleasure machines" which drive every purchase you make.

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Imperfect Cognitions: Bayesian Inference, Predictive Coding and Delusions

Imperfect Cognitions: Bayesian Inference, Predictive Coding and Delusions | Bounded Rationality and Beyond | Scoop.it

This is our third of a series of posts in the papers published in an issue of Avant on Delusions. Here Rick Adams summarises his paper (co-written with Harriet R. Brown and Karl J. Friston) 'Bayesian Inference, Predictive Coding and Delusions'. I am in training to become a psychiatrist. I have also recently completed a PhD at UCL under Prof Karl Friston, a renowned computational neuroscientist. I am part of a new field known as Computational Psychiatry (CP). CP tries to explain how various phenomena in psychiatry could be understood in terms of brain computations (see also Corlett and Fletcher2014, Montague et al., 2012, and Adams et al. forthcoming in JNNP). 

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Mind reading viable as scientists reconstruct speech from brain activity | Science! | Geek.com

Mind reading viable as scientists reconstruct speech from brain activity | Science! | Geek.com | Bounded Rationality and Beyond | Scoop.it

Being able to read someone’s mind has both very good and very bad connotations. We can’t do it yet, but science has taken us a big step forward this week with a new system that can reconstruct speech from brain activity.

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Nudging Legally - On the Checks and Balances of Behavioural Regulation by Alberto Alemanno, Alessandro Spina :: SSRN

Nudging Legally - On the Checks and Balances of Behavioural Regulation by Alberto Alemanno, Alessandro Spina :: SSRN | Bounded Rationality and Beyond | Scoop.it

As behavioural sciences are unearthing the complex cognitive framework in which people make decisions, policymakers seem increasingly ready to design behavioural 

Abstract:      

As behavioural sciences are unearthing the complex cognitive framework in which people make decisions, policymakers seem increasingly ready to design behaviourally-informed regulations to induce behaviour change in the interests of the individual and society. After discussing what behavioural sciences have to offer to administrative law, this paper explores the extent to which administrative law may accommodate their findings into the regulatory process. After presenting the main regulatory tools capable of operationalizing behavioural insights, it builds a case for integrating them into public policymaking. In particular, this paper examines the challenges and frictions of behavioural regulation with regard both to established features of administrative law, such as the principle of legality, impartiality and judicial oversight and more innovative control mechanisms such as the use of randomized control trials to test new public policies. This analysis suggests the need to develop a legal framework capable of ensuring that behavioural considerations may inform the regulatory process while at the same time guaranteeing citizens' constitutional rights and freedoms vis-à-vis the Regulatory State. 

 

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Forecaster overconfidence and market survey performance

Abstract: We document using the ZEW panel of German stock market forecasters that weak forecasters tend to be overconfident in the sense that they provide extreme forecasts and their confidence intervals are less likely to contain eventual realizations. Moderate filters based on forecast accuracy over short rolling windows are somewhat successful in improving predictability. While poor performance can be due to various factors, a filter based on a prior tendency to provide extreme forecasts also improves predictability. 
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