The old empire could teach us a thing or two about the euro and its flaws.
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Simon’s bounded rationality (BR), the first scientific research
program (as opposed to a purely philosophical one) to seriously
take the cognitive limitations of decision makers into
account, has often been conflated with his more restricted
concept of satisficing—choosing an alternative that meets or
exceeds specified criteria, but that is not guaranteed to be
unique or in any sense “the best.” Proponents of optimization
often dismiss bounded rationality out of hand with the following
“hallway syllogism” (as formulated by Bendor 2003:
435, who disagrees with it): bounded rationality “boils down
to” satisficing; satisficing is “simply” a theory of search for
alternatives that takes into account the costs of computation.
Hence, bounded rationality is “just a minor tweak” on optimal
This article complements a psychologist’s plea for “striking
a blow for sanity” in theories of rationality (Gigerenzer
2004). I amplify his argument that bounded rationality is not
optimization under constraints from a more biological perspective.
In order to do so, I first call attention to Simon’s
evolutionary understanding of the nature of bounded rationality
as grounded in the interactions between organisms and their
environments, which has implications for niche construction
and evolutionary theory generally. I then discuss the debate
between “optimizers” and “satisficers” with particular attention
tomodeling in biology. I round off by briefly assessing the
relevance of a ramification of bounded rationality, the neardecomposability
of hierarchical systems, for modular theory,
which predicts that hierarchical developmental processes generate
hierarchical phenotypic units that can change independently.
Interspersed are some remarks on Simon’s philosophical
In 1982, something disturbing began happening to men in northeastern India: Their penises started to shrink. And no amount of physical evidence could convince the unfortunate sufferers otherwise. “Penis panics” — turns out, they’re far from rare — are one of the more striking examples of the general principle behind Hallinan’s fascinating new book, “Kidding Ourselves,” an exploration of our mind’s ability to conjure its own reality. “The things we believe in may be imaginary,” Hallinan writes, “but the results they produce can be real.” He sometimes fuses shaky science with legitimate findings (the implicit-egotism effect, for instance, which argues you’re more likely to marry someone with a similar name because you’re subconsciously drawn to someone who somehow resembles you, has been largely discredited; and no student of behavioral economics would ever hold the stock market as a “citadel of rationality”), and other times flits too rapidly from vignette to vignette, yet such lapses are rare. More frequently, he entertains and provokes in equal measure. And his point is an important one: Our mind is a powerful thing.
In an intimate talk, Barry Schwartz dives into the question "How do we do the right thing?" With help from collaborator Kenneth Sharpe, he shares stories that illustrate the difference between following the rules and truly choosing wisely.
" ....... Rules and incentives don't tell you how to be a good friend, how to be a good parent, how to be a good spouse, or how to be a good doctor or a good lawyer or a good teacher. Rules and incentives are no substitutes for wisdom. Indeed, we argue, there is no substitute for wisdom. And so practical wisdom does not require heroic acts of self-sacrifice on the part of practitioners. In giving us the will and the skill to do the right thing -- to do right by others --practical wisdom also gives us the will and the skill to do right by ourselves...."
The standard theoretical description of rent-seeking contests is that of rational individuals or groups engaging in socially inefficient behavior by exerting costly effort. Experimental studies find that the actual efforts of participants are significantly higher than predicted in the models based on rational behavior and that over-dissipation of rents (or overbidding or over-expenditure of resources) can occur. Although over-dissipation cannot be explained by the standard rational-behavior theory, it can be explained by incorporating behavioral dimensions into the standard model, such as (1) the utility of winning, (2) relative payoff maximization, (3) bounded rationality, and (4) judgmental biases. These explanations are not exhaustive but provide a coherent picture of important behavioral dimensions to be considered when studying rent-seeking behavior in theory and in practice.
Description Social neuroscience is a rapidly growing, interdisciplinary field which is devoted to understanding how social behavior is regulated by the brain, and how such behaviors in turn influence brain and biology. Existing volumes either fail to take a neurobiological approach or focus on one particular type of behavior, so the field is ripe for a comprehensive reference which draws cross-behavioral conclusions. This authored work will serve as the market’s most comprehensive reference on the neurobiology of social behavior. The volume will offer an introduction to neural systems and genetics/epigenetics, followed by detailed study of a wide range of behaviors - aggression, sex and sexual differentiation, mating, parenting, social attachments, monogamy, empathy, cooperation, and altruism. Research findings on the neural basis of social behavior will be integrated across different levels of analysis, from molecular neurobiology to neural systems/behavioral neuroscience to fMRI imaging data on human social behavior. Chapters will cover research on both normal and abnormal behaviors, as well as developmental aspects.
U.S. automotive sales are about 1 million units below where they should be given the long-term historical patterns in the industry.
That’s according to a range of analysts who spoke at the Center for Automotive Research’s Management Briefing Seminars held earlier this month in Traverse City.
Most analysts at the CAR conference expect U.S. light vehicle sales to reach about 16.2 million units this year, up from a recent low of 10.4 million in 2009. But if historical patterns had held up in the recovery, experts said they would have expected to see sales of around 17.4 million vehicles in 2014. That deviation from historical patterns has many in the industry questioning what’s changed.
The answer is part behavioral, part economic and part a reflection of the industry making better products. But economics trumps most other factors for people considering big-ticket purchases, analysts said.
“Consumers are cautiously optimistic,” said Emily Kolinski Morris, senior economist at Ford Motor Co. and one of the speakers at the CAR event. “They see the positive trends that are going on in the economy right now overall, but they are also observing that it is not flowing through to their real incomes to the extent they would like to see. So that’s a little bit of a red flag for consumers.”
While economists acknowledge that the economy of the last few years has been anything but normal, they pointed to a range of factors that have played a role in consumers’ vehicle-buying behavior. Moreover, it’s been the result of cross-generational shifts — not just related to the millennials, the industry’s favorite scapegoat, according to experts.
Do you know what we need before we can have a sound monetary system, a reformed economic curricula, and wealth redistribution instruments?
Why have financial bubbles happened more frequently in the past three decades? With economists and policymakers unable to find satisfactory answers, investors must find ways of guarding portfolios against bubble risk, as investment strategist Nicholas Sargen explains in the latest issue of CFA Institute Magazine.
More highlights from the July/August issue include:
The link between equity market reforms and economic growth in Asia.
Using biomimicry to improve investment decision making.
How controversy over high-frequency trading highlights the tension between innovation and regulation.
Abstract: We study whether leaders influence the unethical conduct of followers. To avoid selection issues present in natural environments, we use a laboratory experiment in which we form groups and assign leadership roles at random. We study an environment in which groups compete, with dishonest behavior enhancing group earnings to the detriment of social welfare. We vary, by treatment, two instruments through which leaders can influence follower conduct—prominent statements to the group and the allocation of monetary incentives. In general, the presence of active group leaders gives rise to significantly more dishonest behavior. Moreover, appointing leaders who are likely to have acted dishonestly in a preliminary stage of the experiment yields groups with significantly more unethical conduct. The analysis of leaders’ strategies reveals that leaders’ statements have a stronger effect on follower behavior than the ability to distribute financial rewards, and that leaders’ propensity to act dishonestly correlates with their use of statements or incentives as a means for encouraging dishonest follower conduct.
When I tell other students here that I plan to study behavioral economics, one of the first things they say to me is, "Have you heard of Malcolm Gladwell?" And usually I respond, "How could I not have heard of him?" He has entrenched himself as one of the most recognizable authors in recent memory. His popularity and perceived know-how have allowed him to command $45,000 in speaking fees per appearance, most notably at Bank of America (and if you were wondering how BOA has been doing recently...). He was also given an award by the American Sociological Association for his excellence in "disseminating sociological research," so academics have endorsed him as well.
Certainly, I have read many of his books at the recommendation of many peers. Just like they said, most of his work centers around topics in social psychology, a key component in many business and economic threads. I have found his books to be well written; mesmerizing at times, as he skillfully and effortlessly glides from topic to topic, story to story. His writing style is unique and captivating. Unfortunately, rather than nonfiction, professional, business-level books, I have found his writings to be full of simple stories that do nothing more than stir up a generalized interest and allow the author to engage in vague theorizing.
It is a combination of psychology and economics which looks into economic decision-making.If human beings were rational decision makers, as assumed in standard economics literature, the functioning of financial markets would have been a lot smoother than it actually is. If investors always behaved rationally, then they would have only bought assets that are undervalued and sold whenever prices went above the fair value. As a result, over time, all assets would have been priced to perfection and we would not have faced boom and bust cycles in the financial market. However, they are a regular feature and studies in behavioural economics show that people do not always act rationally. In an article on behavioural economics, Harvard Magazine has put this aptly. “Economic Man makes logical, rational, self-interested decisions that weigh costs against benefits and maximize value and profit to himself. Economic Man is an intelligent, analytic, selfish creature who has perfect self-regulation in pursuit of his future goals and is unswayed by bodily states and feelings… But Economic Man has one fatal flaw: he does not exist.” (See: The Marketplace of Perceptions, March-April 2006.) What is behavioural economics? It can be defined as a combination of psychology and economics which looks into the economic decision-making of individuals. It has been found that human behaviour is not always rational as previously perceived. Human beings have limited ability to process information and take mental shortcuts (also known as heuristics) to arrive at a decision. There are also cognitive biases that affect decisions.
One icy night in March 2010, 100 marketing experts piled into the Sea Horse Restaurant in Helsinki, with the modest goal of making a remote and medium-sized country a world-famous tourist destination. The problem was that Finland was known as a rather quiet country, and since 2008, the Country Brand Delegation had been looking for a national brand that would make some noise.
Over drinks at the Sea Horse, the experts puzzled over the various strengths of their nation. Here was a country with exceptional teachers, an abundance of wild berries and mushrooms, and a vibrant cultural capital the size of Nashville, Tennessee. These things fell a bit short of a compelling national identity. Someone jokingly suggested that nudity could be named a national theme—it would emphasize the honesty of Finns. Someone else, less jokingly, proposed that perhaps quiet wasn’t such a bad thing. That got them thinking.
A few months later, the delegation issued a slick “Country Brand Report.” It highlighted a host of marketable themes, including Finland’s renowned educational system and school of functional design. One key theme was brand new: silence. As the report explained, modern society often seems intolerably loud and busy. “Silence is a resource,” it said. It could be marketed just like clean water or wild mushrooms. “In the future, people will be prepared to pay for the experience of silence.”
Genio e follia: questo binomio spesso abusato pare però abbia perfino una sia pur parziale radice biologica. L'accostamento fatto da una recente ricerca non riguarda tanto la eventuale sregolatezza del grande talento, ma la capacità di creare associazioni d'idee insolite, che nel caso del genio sono creative.
If you ask, “what drives successful innovation?” you are likely to get these answers: “Desire for growth.” “Demand for increased profitability.” “People.”
While clearly true, these are superficial answers. There’s no clear way to link these answers to the factors that would lead to success in innovation – or the factors that lead to failure. Innovation is still regarded as somewhat uncontrollable and mysterious, though this perception is beginning to change. The idea that there are factors that, singly and in combination, drive innovation (successful innovation in particular) has just begun to be discussed. An effort to understand innovation drivers – those factors that motivate and shape innovation efforts, and in no small way determine their success or failure – seemed to us to be a promising way to discover what factors make for success and failure in innovation.
We interviewed a number of executives from across a wide range of industries, who either were or had been responsible for innovation efforts throughout their careers. Our goal was to find common innovation drivers that could be linked to successes and failures.
During the course of collecting nearly twenty highly diverse innovation stories, we realized these executives were telling us about something much more actionable than drivers. They told us about:Questions that were asked and were not asked.Issues that were addressed and not addressed.Decisions that were and were not made.Information that strongly impacted the innovation effort, but was discovered too late to alter the effort.
Ultimately, their stories pointed out that it was these things, rather than the initial driver behind the innovation, that led either to a successful or to a failed innovation. We refer to these critical things as “lynchpin drivers.”#Heuristic #Framework
The purpose of this paper is to understand the reasons behind financial market behavior that often does not match that proposed by classic finance models. In particular, this work tests the fully-rational agents assumption made by classic finance to explain investment decisions under uncertainty. Many issues claim for a better alternative explanation to classic finance, regarding how and why of the financial market behavior changes. Among these issues, we may highlight: housing bubbles, financial crisis, excess of volatility, high heterogeneity in analyst forecasts, and a large amount of speculators looking for the “holy grail” to profit from the market. In order to answer the question, this paper has selected the most salient financial market anomalies, such as, the Closed-end fund mispricing and the Excess Volatility in stock markets. The purpose is to test by a thorough review of empirical works existent in the literature the assumption of fully-rationality in investment decisions. Subsequently, it goes deeper into trying to understand the way people – and investors – make decisions under uncertainty. A relevant and very popular bias is Overconfidence which is deeply analyzed, as well as the highly observed tendency among traders to let losing positions run while cutting winners too early (the Disposition Effect). For the latter, this study provides support on the theory of prospects and the Mental Accounting bias. Finally, the research focuses on unconscious mental strategies that people use to evaluate the likelihood of events, as well as the value of assets in a quick and low-cost way: Availability and Anchoring heuristics. The main findings of this research are that a) Markets are not efficient always; b) People are quasi-rational; hence the assumption of full-rationality is not realistic to interpret and forecast financial markets; and c) There is a deep ocean of cognitive factors in every individual and most of the time those are present in financial decision making, thus affecting the optimal output of their estimations and solutions to problems under uncertainty. #neuroeconomy
Abstract: We run an experiment with users of internet message boards. We find that forum users cooperate more with partners of their own forum than with partners from a different forum but they are equally altruistic when they made a gift to a partner of their forum or from another one. We also find that individuals are more active in the forums, the more altruistic they are; however, we find no relation between activity in the forum and cooperation. These results suggest that the public good provided in internet forums is mainly provided by a group of unconditional altruistic group of users, and that the feeling of community supports the cooperation in that provision.
British philosopher Derek Parfit espoused a severely reductionist view of personal identity in his seminal book, Reasons and Persons: It does not exist, at least not in the way we usually consider it. We humans, Parfit argued, are not a consistent identity moving through time, but a chain of successive selves, each tangentially linked to, and yet distinct from, the previous and subsequent ones. The boy who begins to smoke despite knowing that he may suffer from the habit decades later should not be judged harshly: “This boy does not identify with his future self,” Parfit wrote. “His attitude towards this future self is in some ways like his attitude to other people.”
Parfit’s view was controversial even among philosophers. But psychologists are beginning to understand that it may accurately describe our attitudes towards our own decision-making: It turns out that we see our future selves as strangers. Though we will inevitably share their fates, the people we will become in a decade, quarter century, or more, are unknown to us. This impedes our ability to make good choices on their—which of course is our own—behalf. That bright, shiny New Year’s resolution? If you feel perfectly justified in breaking it, it may be because it feels like it was a promise someone else made.
Music has long been suggested to be a way to make people feel powerful. The current research investigated whether music can evoke a sense of power and produce power-related cognition and behavior. Initial pretests identified musical selections that generated subjective feelings of power. Experiment 1 found that music pretested to be powerful implicitly activated the construct of power in listeners. Experiments 2–4 demonstrated that power-inducing music produced three known important downstream consequences of power: abstract thinking, illusory control, and moving first. Experiments 5a and 5b held all features of music constant except for the level of bass and found that music with more bass increased participants' sense of power. This research expands our understanding of music’s influence on cognition and behavior and uncovers a novel antecedent of the sense of power.
Abstract: Adding to the debate about the “broken windows” thesis we discuss an explanation of minor norm violation based on the assumption that individuals infer expected sanctioning probabilities from contextual cues. We modify the classical framework of rational crime by signals of disorder, local social control, and their interaction. Testing our implications we present results from three field experiments showing that violations of norms, which prevent physical as well as social disorder, foster further violations of the same and of different norms. Varying the net gains from deviance it shows that disorder effects are limited to low cost situations. Moreover, we provide suggestive evidence that disorder effects are significantly stronger in neighborhoods with high social capital.