Bounded Rationality and Beyond
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Ontonix - Complex Systems Management, Business Risk Management

Ontonix - Complex Systems Management, Business Risk Management | Bounded Rationality and Beyond | Scoop.it
The economy is a dynamic system which is far too complex for us to understand. Human nature is extremely complex and billions of irrational humans form the economy. How can such a system ever be thought to be inherently stable - as many prominent economists have sustained? But this system, like every other natural or man-made system, must respect the laws of physics, even if they may be unknown at a given time. One of the instruments that have enabled the crisis, and allowed it to be hidden for a long time, are sophisticated math models. There was nothing in those models that would even hint catastrophy because models can only tell you what you hard-wire into them. A Panglossian approach to finance and the economy excludes extreme events and catastrophies, allowing bubbles to grow and Ponzi schmes to flourish. So failure was not contemplated in the models. And nobody can force you to do so.
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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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Herding and Contrarian Behavior in Financial Markets: An Experimental Analysis

Abstract: We analyze and confirm the existence and extent of rational informational herding and rational informational contrarianism in a financial market experiment, and compare and contrast these with equivalent irrational phenomena. In our study, subjects generally behave according to benchmark rationality. Traders who should herd or be contrarian in theory are the signi cant sources of both within the data. Correcting for subjects who can be identified as less rational increases our ability to predict herding or contrarian behavior considerably.


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Rankings and Risk-Taking in the Finance Industry

Abstract: Rankings are a pervasive feature of the finance industry. Although they have no direct monetary consequences, rankings provide utility for intrinsic (positive self-image) and extrinsic (status) reasons. We recruit a unique subject pool of 204 financial professionals and investigate how anonymous rankings influence risk-taking in investment decisions. We find that rankings increase risk-taking because of financial professionals' desire for positive self-image. This particularly applies to underperformers, who take the highest risks. Incentivizing rankings monetarily does not further increase risk-taking. In a comparative study with 432 students we find that student behavior is not driven by rankings.


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ideas42 Affiliate Series: A Talk with Paul Zak - ideas42

ideas42 Affiliate Series: A Talk with Paul Zak - ideas42 | Bounded Rationality and Beyond | Scoop.it

Our New York office recently had the pleasure of hosting Paul Zak– our newest Affiliate and founding Director of the Center for Neuroeconomics Studies and Professor of Economics, Psychology and Management at Claremont Graduate University. Zak is credited with the first published use of the term “neuroeconomics”. His work over the last decade has explored the powerful influence of oxytocin in affecting trust, morality and virtuous behaviors and his recent research applies neuroscience to improve marketing and consumer experiences as well as organizational performance. Before speaking to the ideas42 team about some of his preliminary work, Paul took the time to tell us some fascinating insights about the applications of neuroeconomics in his lab and the real world.


What drew you to the field of neuroeconomics?


I was drawn to neuroeconomics out of frustration. I really want to understand what human beings are doing yet economists had this sense that people were making mistakes but we didn’t know why. People would make decisions that, they themselves would say, is not best for them and they would label as ‘irrational’. In fact, our brain’s make decisions in very specific ways that allows us to survive, reproduce and so we really want to take a very humble approach to ask what’s going on in the brain while we make decisions in order to understand them without any overlay of good or bad. Lets just find out what brains are doing.

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Feasible sets, comparative risk avers... - Maastricht University

Feasible sets, comparative risk aversion, and comparative uncertainty aversion in bargaining


Abstract: We study feasible sets of the bargaining problem under two different assumptions the players are subjective expected utility maximizers or the players are Choquet expected utility maximizers. For the latter case, we consider the effects on bargaining solutions when players become more risk averse and when they become more uncertainty averse.

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Nudge, la politica 'sexy' che punta a migliorare il mondo. Con gentilezza

Nudge, la politica 'sexy' che punta a migliorare il mondo. Con gentilezza | Bounded Rationality and Beyond | Scoop.it

Difficile pensare che la mosca disegnata al centro di un orinatoio rappresenti l’ultima frontiera del policy making, ma è così. Nei bagni pubblici di Schipholl, l’aeroporto di Amsterdam, serve a indirizzare il flusso di urina attirando l’attenzione degli utenti che, divertiti, istintivamente “mirano”: funziona meglio di ogni appello alla pulizia. Voilà un esempio classico – ed estremo – di nudge, ovvero “spinta gentile”: promuovere una buona pratica con un semplice stratagemma.

Dalle mosche agli elefanti: è la copertina di Nudge, la spinta gentile, in cui un pachiderma spinge dolcemente con la proboscide un suo simile. Questo best seller del 2008 (che si apre proprio con l’esempio degli orinatoi) ha inaugurato la teoria e introdotto alla Casa Bianca uno dei due autori, Cass R. Sunstein: nel 2009 è stato scelto da Obama per partecipare alle attività di governo del primo mandato.


Ti manipolo per il tuo bene

Ma di che si tratta esattamente? Che cosa sono questi nudge? Sono la conseguenza strategico-politica della diffusione in ambito accademico dei “behavioral studies”, gli studi comportamentali che fondono economia e psicologia, e che studiano i meccanismi delle scelte e gli automatismi mentali alla base di ogni azione, soprattutto quelle automatiche.


Questi studi dimostrano che tutti noi sopravvalutiamo la nostra razionalità: in realtà, ci muoviamo nel mondo spinti da istinti, abitudini, semplificazioni mentali e influenze sociali. Molti di questi meccanismi sono però prevedibili (come sanno benissimo gli esperti di marketing e pubblicità), e possono essere sfruttati per “spingere gentilmente” verso comportamenti intelligenti e pro-sociali. Ed ecco i nudge, stratagemmi psicologici usati per incoraggiare a donare il sangue, fare la raccolta differenziata, pagare le tasse, iscriversi a un fondo pensionistico, mangiare sano, risparmiare energia… Insomma il nudge è un marketing virtuoso.Cos'hanno in comune una mosca ad Amsterdam e Barack Obama? Hanno entrambi a che vedere con il nudge, il 'marketing virtuoso' che piace ai politici 

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» Stories from the States | The Behavioural Insights Team

» Stories from the States | The Behavioural Insights Team | Bounded Rationality and Beyond | Scoop.it
As part of BIT North America’s work with the Bloomberg Philanthropies What Works Cities initiative, we have launched ten randomized control trials in six cities from Kentucky to California in the last six months. While we wait for the results, we thought we’d share three stories that shed some light on BIT’s methodology and let you know what we’ve been up to in our first few months in the US.

The (randomized control) Trial

First up, a city that — like many — is already equipped to run randomized control trials but didn’t know it.

The marketing team at our wonderful partners, the City of Denver, uses MailChimp — an emailing software that includes built-in A/B test features. During a visit to the city, we were able to help them run a simple experiment to answer a simple question: which email would get more more people to click through to Denver’s online Department of Motor Vehicles (DMV) service? — email A or email B?
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The Rise of the Artificially Intelligent Hedge Fund

The Rise of the Artificially Intelligent Hedge Fund | Bounded Rationality and Beyond | Scoop.it

BEN Goertzel and his company, Aidyia, turned on a hedge fund that makes all stock trades using artificial intelligence—no human intervention required. “If we all die,” says Goertzel, a longtime AI guru and the company’s chief scientist, “it would keep trading.”


He means this literally. Goertzel and other humans built the system, of course, and they’ll continue to modify it as needed. But their creation identifies and executes trades entirely on its own, drawing on multiple forms of AI, including one inspired by genetic evolution and another based on probabilistic logic. Each day, after analyzing everything from market prices and volumes to macroeconomic data and corporate accounting documents, these AI engines make their own market predictions and then “vote” on the best course of action.

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pinITALY - Intervista Alberto Alemanno su democrazia partecipativa e nudging

Intervista ad Alberto Alemanno - Esperto di diritto, avvocato e Professore di EU Law & Risk Regulation presso l’HEC di Parigi. Alemanno spiega a pinITALY che cos’è la democrazia partecipativa e come funziona il nudging. @Telosaes
Interview with Alberto Alemanno, public interest lawyer and Professor in EU Law & Risk Regulation at the HEC Paris. Alemanno explains what is participatory democracy and how nudging works.
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Think Different to Lead Different

Think Different to Lead Different | Bounded Rationality and Beyond | Scoop.it

The show put entrepreneurs and celebrities in with charities in amongst the work and on the frontline developing innovative and ground-breaking projects that could have profound, positive effects for those in need tackling some of Britains biggest issues, while secretly trying to help secure £2 million of Lottery money that could turn the big idea into reality.


With youth unemployment increasing and now nearly 1 million people under 25 not in work, job centres are failing in my opinion to engage young people with the idea of finding a job. But what if the job centre was reinvented by young people, for young people? (designed by the customer for the customer, in other words).


Dave Fishwick was tasked with tackling this issue.


Straight-talking, self-made millionaire Dave Fishwick is one of the biggest suppliers of minibuses in Britain and in 2011 he took on the banking industry and successfully fought to open his own bank, so he is used to radical thinking.

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Human Memory Capacity is TEN TIMES MORE Than Previously Thought - PsyBlog

Human Memory Capacity is TEN TIMES MORE Than Previously Thought - PsyBlog | Bounded Rationality and Beyond | Scoop.it

A human brain could hold as much information as the entire internet, a new study finds.

Human memory capacity is in the petabyte range, researchers at the Salk Institute have now found.

This is ten times larger than was previously thought.

Professor Terry Sejnowski, the study’s first author, said:

“This is a real bombshell in the field of neuroscience.

We discovered the key to unlocking the design principle for how hippocampal neurons function with low energy but high computation power.

Our new measurements of the brain’s memory capacity increase conservative estimates by a factor of 10 to at least a petabyte, in the same ballpark as the World Wide Web.”

The conclusions come from an analysis of the brain’s synapses.The picture above shows a synapse between an axon (green) and dendrite (yellow). 

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Miklos Szilagyi's curator insight, January 25, 4:12 AM

Good news...:-))) OK, I did know it... intuitively, of course...:-)))

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Pensare l'impensabile: Otto Neurath e l'economia senza moneta

Pensare l'impensabile: Otto Neurath e l'economia senza moneta | Bounded Rationality and Beyond | Scoop.it
By Mario Ricciardi in Economics and Otto Neurath.
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Social Identity, Attitudes Towards Cooperation, and Social Preferences: Evidence From Switzerland

Abstract: We investigate the role of social identity in explaining individual variation in social preferences in the domain of cooperation. We combine measures of social identity at both extensive and intensive margins with measures of social preferences elicited using a public goods game in the strategy method among a representative sample of Swiss households. We document a strong association between social identity and social preferences, which becomes stronger with the degree of social identity. Using different data sources, we show that social identity matters also for attitudes towards cooperation. Our results are not driven by differences in national or even local institutions, geography, historical, and economic conditions. Additional analyses show that grandparental and parental background shapes social identity, as well as social preferences. Our design allows us to go beyond behavior and disentangle social preferences from beliefs, highlighting the importance of social identity for deeper social preferences in a natural field setting.


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TEDxMidAtlantic 2011 - Eldar Shafir - Living Under Scarcity

Eldar Shafir is the William Stewart Tod Professor of Psychology and Public Affairs in the Department of Psychology and the Woodrow Wilson School of Public and International Affairs at Princeton University. His research focuses on decision-making, and on issues related to behavioral economics, with an emphasis on empirical studies of how people make decisions in situations of conflict and uncertainty.

C

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Understanding Conformity: An Experimental Investigation

Abstract: Some theories of conformity hold that social equilibrium either standardizes inferences or promotes a shared understanding of conventions and norms among individuals with fixed heterogeneous preferences (belief mechanisms). Others depict tastes as fluid and hence subject to social influences (preference mechanisms). Belief mechanisms dominate discussions of conformity within economics, but preference mechanisms receive significant attention in other social sciences. This paper seeks to determine whether conformity is attributable to belief mechanisms or preference mechanisms by exploiting their distinctive implications for the process of convergence. Laboratory experiments suggest that economists have focused too narrowly on explanations for conformity involving belief mechanisms.
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The Future of Behavioural Change: Balancing Public Nudging vs Private Nudging by Alberto Alemanno :: SSRN

The Future of Behavioural Change: Balancing Public Nudging vs Private Nudging by Alberto Alemanno :: SSRN | Bounded Rationality and Beyond | Scoop.it

Abstract:      

Public authorities, including the European Union and its Member States, are increasingly interested in exploiting behavioral insights through public action. They increasingly do so through choice architecture, i.e. the alteration of the environment of choice surrounding a particular decision making context in areas as diverse as energy consumption, tax collection and public health. In this regard, it is useful to distinguish between two situations. The first is that of a public authority which seeks to steer behaviour in the public interest, taking into account one or more mental shortcuts. Thus, a default enrollment for organ donation leverages on the power of inertia to enhance the overall prevalence organ donors. Placing an emoticon (sad face) or a set of information about average consumption on a prohibitive energy bill has the potential to nudge consumers towards less energy consumption. I call this pure public nudging. The second perspective is when public authorities react to exploitative uses of mental shortcuts by market forces by regulating private nudging. I call this 'counter-nudging'. Pure public nudging helps people correct mental shortcuts so as to achieve legitimate objectives (e.g. increased availability of organs, environmental protection, etc.), regardless of their exploitative use by market forces. 


It is against this proposed taxonomy that the 2nd AIM Lecture examines whether also private companies may nudge for good. Are corporations well-placed to nudge their customers towards societal objectives, such as the protection of the environment or the promotion of public health? This is what I call benign corporate nudging. 


Their record is far from being the most credible. Companies have used behavioural inspired interventions to maximize profits, what led them to sell more and in turn to induce citizens into more consumption. Yet corporate marketing need not always be self-interested. An incipient number of companies are using their brand, generally through their packaging and marketing efforts, to 'nudge for good'. By illustrating some actual examples, this lecture defines the conditions under which companies may genuinely and credibly nudge for good. It argues that benign corporate nudging may have – unlike dominant CSR efforts – a positive long-term, habit-forming effect that influences consumers' future behaviour 'for good'.



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Finally a Study Explains Why Rich and Successful People Are Often Dishonest 

Finally a Study Explains Why Rich and Successful People Are Often Dishonest  | Bounded Rationality and Beyond | Scoop.it

Let’s face it, we’ve all been wondering why so many rich, successful, powerful people are cheating, lying, disgraces. Is it that only unethical people make it to the top? At least one study indicates that this is not the case—it’s that winning itself makes people behave unethically.


The Proceedings of the National Academy of Sciences just published a study that does not bode well for humanity’s future. Scientists at Ben-Gurion University and The Hebrew University of Jerusalem had participants in a psychological study participate in a series of games, the first of which determined a “winner,” and the second of which let that winner decide how much money they could award themselves. They found that competition winners cheated, awarding themselves more money than they deserved.


The games all involved two players playing against each other. In the first experiments, the participants played simple memory or identification games. They were told whether they were the winner or the loser, and if they won, they were given a pair of ear buds for a prize.


Let’s face it, we’ve all been wondering why so many rich, successful, powerful people are cheating, lying, disgraces. Is it that only unethical people make it to the top? At least one study indicates that this is not the case—it’s that winning itself makes people behave unethically. 

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NeuroEconomia: Come il Cervello prende le Decisioni - Video Corso

Economia, Psicologia e Neuroscienze stanno oggi convergendo in una nuova disciplina chiamata Neuroeconomia, con l'obiettivo di fornire una unica teoria generale dei processi decisionali umani.

La Neuroeconomia offre a economisti, psicologi e scienziati sociali una più profonda comprensione di come l'uomo prendere le decisioni, partendo dal presupposto che, a differenza di quanto affermato dall’economia tradizionale, l’uomo non è un animale razionale, ma agisce sotto l’impulso di processi neuronali automatici e molto spesso inconsci, quindi indipendenti dalla propria volontà.  

Il cervello é programmato per prendere rischi o per evitarli ? Come è valutata dal cervello una "decisione giusta" ? E possibile prevedere le intenzioni di acquisto di un consumatore ? Possiamo modulare il comportamento del cervello riguardo gli aspetti economici ?

Per rispondere a queste domande e conoscere meglio le basi della Neuroeconomia a partire dal prossimo 23 Giugno la prestigiosa Higher School of Economics di Mosca, presenta un nuovo interessante video corso di 9 settimane totalmente gratuito, intitolato Introduction to Neuroeconomics: how the brain makes decisions che tratterà molti argomenti partendo dai fondamenti della neuroeconomia e neuroanatomia del cervello trattati in quattro moduli successivi, guarda la video-presentazione del corso :.
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The hidden tricks of powerful persuasion

The hidden tricks of powerful persuasion | Bounded Rationality and Beyond | Scoop.it

Are we all just puppets on a string? Most people would like to assume that they are free agents – their fate lies in their own hands. But they’d be wrong. Often, we are as helpless as a marionette, being jerked about by someone else’s subtle influence. Without even feeling the tug, we do their bidding – while believing that it was our idea all along.

“What we’re finding more and more in psychology is that lots of the decisions we make are influenced by things we are not aware of,” says Jay Olson at McGill University in Quebec, Canada – who recently created an ingenious experiment showing just how easily we are manipulated by the gentlest persuasion. The question is, can we learn to spot those tricks, and how can we use them to our own advantage?

Olson has spent a lifetime exploring the subtle ways of tricking people’s perception, and it all began with magic. “I started magic tricks when I was five and performing when I was seven,” he says.Are we always in control of our minds? As David Robson discovers, it’s surprisingly easy to plant ideas in peoples’ heads without them realising. 

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Cass Sunstein - Nudge: Improving Decisions About Health, Wealth, and Happiness

Cass Sunstein, Harvard law professor, discusses his book "Nudge: Improving Decisions About Health, Wealth, and Happiness," at Cambridge Forum. He applies social science research on human behavior to legal questions in the stock market, mortgage markets, environmental protection, and family law. http://forum-network.org


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Scienze Cognitive: L'illusione di Sapere. Bias & Euristiche

Scienze Cognitive: L'illusione di Sapere. Bias & Euristiche | Bounded Rationality and Beyond | Scoop.it

È opinione comune che decisioni importanti non debbano essere prese sull’onda dell’emotività, bensì ponderate ed effettuate razionalmente. Peccato che la nostra mente “razionale” ci giochi spesso brutti scherzi. Infatti senza accorgercene imbocchiamo quelli che Piattelli-Palmarini definisce tunnel della mente, cioè mettiamo in atto delle strategie mentali (euristiche) fallaci oppure commettiamo degli errori cognitivi (bias) con risultati a dir poco disastrosi!

L’ illusione di sapere è una sconcertante rassegna degli errori madornali che compiamo quando prendiamo delle decisioni. Questi tunnel sono universali, sistematici, indipendenti dallo stato emotivo del momento, del tutto inconsapevoli e influenzano le nostre scelte nei più svariati campi.
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...and empathy too!

...and empathy too! | Bounded Rationality and Beyond | Scoop.it

This is a response to a post by Julie Drybrough, so it might be useful to check out her post before reading on. What I liked about her post and most of her posts is that it enlivened me and gave me an insight into what goes on for HER, rather than just blether about the “ten best whatevers” which most often leaves me with a sense of altschmertz, so I heartily recommend subscribing to her blog. At the end of it, she invited people to respond in the spirit of critical thinking, but if I may have some license, I would like to respond in a spirit of loving collaboration and “building on”. As she implores herself to get out of her “bubble”, it’s so important for me, too, to expose myself to things which challenge me to think about myself and the perspectives I hold about the world, otherwise I am not entirely sure I would be of much good service to others.

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Resting brain chatter predicts ability to learn second language

Resting brain chatter predicts ability to learn second language | Bounded Rationality and Beyond | Scoop.it

Learning your native language as a child is tricky enough, but learning a second is a labor of love.


Once we have left the golden years of youth, learning new linguistic skills can be a hard-won battle.


Researchers at McGill University in Montreal, Canada, used functional magnetic resonance imaging (fMRI) to measure the normal resting activity of students' brains before embarking on a French language course.


The team, led by Xiaoqian Chai and Denise Klein, measured whether differences in connectivity predicted the success of the language students.


The results, published in The Journal of Neuroscience this week, are a tantalizing peek into why some people seem to learn second languages with more ease than others.


If you are planning on learning a second language, the connectivity of your brain at rest might predict how easy, or how difficult, you find it. 

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Mental depletion complicates financial decisions for the poor | PBS NewsHour

Mental depletion complicates financial decisions for the poor | PBS NewsHour | Bounded Rationality and Beyond | Scoop.it

Why does it become more difficult to make good financial decisions when you’re poor?

Last month, behavioral economist Dan Ariely and his team at the Center for Advanced Hindsight opened up the Common Cents Lab. Its goal is twofold: to examine how those living in poverty misspend their money and to help the poor make better financial decisions. I spoke with Ariely about the center, our not-so-rational spending and why making good financial decisions becomes even more difficult when you’re poor. For more on the topic, read the second half of Making Sen$e’s interview with Ariely here. The following conversation has been edited and condensed for clarity and length.



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