Bounded Rationality and Beyond
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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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Gigerenzer versus nudge

Gigerenzer versus nudge | Bounded Rationality and Beyond | Scoop.it

Since I first came across it, I have been a fan of Gerd Gigerenzer’s work. But I have always been slightly perplexed by the effort he expends framing his work in opposition to behavioural science and “nudges”. Most behavioural science aficionados who are aware of Gigerenzer’s work are fans of it, and you can appreciate behavioural science and Gigerenzer without suffering from two conflicting ideas in your mind. In a recent LSE lecture about his new book Risk Savvy: How to Make Good Decisions(which sits unread in my reading pile), Gigerenzer again has a few swipes at Daniel Kahneman and friends. The blurb for the podcast gives a taste. A set of coercive government interventions are listed, none of which are nudges, and it is suggested that we need risk savvy citizens who won’t be scared into surrendering their freedom. Slotted between these is the suggestion that some people see a need for “nudging”.Gigerenzer does provide a different angle to the behavioural science agenda. His work has provided strong evidence for the accuracy of heuristics and shown that many of our so-called irrational decisions make sense from the perspective of the environment where they were designed (evolved). But his work doesn’t undermine the fact that many decisions are made outside of the environment where they originated – those fast, frugal and well-shaped heuristics have not stopped us getting fat, spending huge amounts on unused gym memberships and failing to save for retirement. Gigerenzer’s work provides depth to the behavioural analysis, rather than undermining it, and points to a richer set of potential solutions.

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Big Data Economics

Big Data Economics | Bounded Rationality and Beyond | Scoop.it
This description of a data "input" value chain assumes that data is owned by someone or by an organisation. The ISO-IEC JTC1 Study Group on Big Data has been very clear that there should be a universal attribute to data specifying its owner(s). The data owner could be an individual: for instance, consider the case of personal data owned by a person. More broadly the data generated by objects owned by a person are likely to be owned by this person: for instance the current geographic position of my car. This means that there are expanding circles around people, with data in such circles. This creates a natural link across the areas of the Internet of People, where people communicate and interact with each other or with "the Internet", and the Internet of Things (IoT) with sensors and actuators, and machine intelligence all connected to serve (hopefully) the needs of humans. 
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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.
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DeloitteVoice: The Last-Mile Problem: How Data Science And Behavioral Science Can Work Together

DeloitteVoice: The Last-Mile Problem: How Data Science And Behavioral Science Can Work Together | Bounded Rationality and Beyond | Scoop.it

What do “Moneyball”—applying data analytics to make more economically efficient decisions—and “nudge”— using principles from psychology and behavioral economics to promote decisions that are consistent with people’s long-term goals—have in common? Quite a bit, as it turns out.

Business analytics and the science of behavioral nudges are different types of responses to the observation that people are predictably irrational. Predictive analytics aims to guide people toward “rational” behavior by using data to correct for mental biases. Behavioral techniques aim to nudge people toward certain actions by designing choice environments in ways that go with, rather than against, the grain of human psychology.

The science of behavioral nudges should find a place in the toolkit of mainstream predictive analytics. Predictive models, however strongly backed by analytics, can only point the end user in the right direction—and no model can deliver the benefits it is designed to deliver unless appropriately acted upon. It is at this “last mile” stage that most programs meet with the greatest resistance, and behavioral nudges can play a part in solving this problem.

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Evidence for and against a simple interpretation of the less-is-mor effect

Abstract The less-is-more effect predicts that people can be more accurate making paired-comparison decisions when they have less knowledge, in the sense that they do not recognize all of the items in the decision domain. The traditional theoretical explanation is that decisions based on recognizing one alternative but not the other can be more accurate than decisions based on partial knowledge of both alternatives. I present new data that directly test for the less-is-more effect, coming from a task in which participants judge which of two cities is larger and indicate whether they recognize each city. A group-level analysis of these data provides evidence in favor of the less-is-more effect: there is strong evidence people make decisions consistent with recognition, and that these decisions are more accurate than those based on knowledge. An individual-level analysis of the same data, however, provides evidence inconsistent with a simple interpretation of the less-is-more effect: there is no evidence for an inverse-U-shaped relationship between accuracy and recognition, and especially no evidence that individuals who recognize a moderate number of cities outperform individuals who recognize many cities. I suggest a reconciliation of these contrasting findings, based on the systematic change of the accuracy of recognition-based decisions with the underlying recognition rate. In particular, the data show that people who recognize almost none or almost all cities make more accurate decisions by applying the recognition heuristic, when compared to the accuracy achieved by people with intermediate recognition rates. The implications of these findings for precisely defining and understanding the less-is-more effect are discussed, as are the constraints our data potentially place on models of the learning and decision-making processes involved

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The effect of perceived regional accents on individual economic behavior: A lab experiment on linguistic performance, cognitive ratings and economic decisions

Abstract: Does it matter if you speak with a regional accent? Speaking immediately reveals something of one's own social and cultural identity, be it consciously or unconsciously. Perceiving accents involves not only reconstructing such imprints but also augmenting them with particular attitudes and stereotypes. Even though we know much about attitudes and stereotypes that are transmitted by, e.g. skin color, names or physical attractiveness, we do not yet have satisfactory answers how accent perception affects human behavior. How do people act in economically relevant contexts when they are confronted with regional accents? This paper reports a laboratory experiment where we address this question. Participants in our experiment conduct cognitive tests where they can choose to either cooperate or compete with a randomly matched male opponent identified only via his rendering of a standardized text in either a regional accent or standard accent. We find a strong connection between the linguistic performance and the cognitive rating of the opponent. When matched with an opponent who speaks the accent of the participant's home region - the in-group opponent - individuals tend to cooperate significantly more often. By contrast, they are more likely to compete when matched with an accent speaker from outside their home region, the out-group opponent. Our findings demonstrate, firstly, that the perception of an out-group accent leads not only to social discrimination but also influences economic decisions. Secondly, they suggest that this economic behavior is not necessarily attributable to the perception of a regional accent per se, but rather to the social rating of linguistic distance and the in-group/out-group perception it evokes.
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Neuroscientist debunks one of the most popular myths about the brain

Neuroscientist debunks one of the most popular myths about the brain | Bounded Rationality and Beyond | Scoop.it

Some people are more creative or logical than others, but it's not explained by the use of their brain hemispheres. At some point in your life, you've probably been labeled a "right-brain thinker" (you're so creative!) or a "left-brain thinker" (you're so logical). Maybe this has shaped the way you see yourself or view the world.

 

Well, either way it's bogus science, says Sarah-Jayne Blakemore, a University College London professor of cognitive science, in the latest episode of the Freakonomics Radio Podcast.

"This is an idea that makes no physiological sense," she says.

Blakemore believes that the concept of "logical, analytical, and accurate" thinkers favoring their left hemisphere and "creative, intuitive, and emotional" thinkers favoring their right hemisphere is the misinterpretation of valuable science. She thinks it entered pop culture because it makes for snappy self-help books. And of course people love categorizing themselves.

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Laziness Is More Complex Than You Think: How a More Nuanced Approach Can Help Us Overcome Laziness When Needed

Laziness Is More Complex Than You Think: How a More Nuanced Approach Can Help Us Overcome Laziness When Needed | Bounded Rationality and Beyond | Scoop.it

When I was in high school, I was what you would call a lazy student. Studying, doing my homework, preparing for exams -- none of these were activities I was particularly good at. My father would often say that I lacked "Sitzfleisch," a German word that translates to "sitting meat" and refers to the capability of sitting on your behind and getting your work done. When I reached 11th grade, however, everything changed. I met a teacher who visibly cared about his subject, Biology, and what he taught actually interested me. Gone were the days of struggling to study. Instead, I started to devour books upon books about biology and even arranged for a biology tutor. Interestingly, this attitude generalized to other subjects as well, such that by the end of 12th grade, my father stopped calling me lazy and proudly announced that I had finally developed "Sitzfleisch."

But was it really that simple? Is laziness a trait that one can get rid of over time? The answer, in my opinion, is a resounding "No." To this day, I am still lazy in some situations, but not in others. Laziness, I believe, is not a trait that one has or does not have but is instead a set of states and habits. I think that what we call laziness is actually a blanket term for a wide range of behaviors that have different roots and origins. Overcoming laziness, then, does not merely require a single approach, such as developing "Sitzfleisch," but instead depends on the type of laziness we encounter. Here, I outline different kinds of laziness, what their root causes may be, and how we can best overcome laziness when desired or necessary.

 
We also need to recognize that sometimes, being lazy is far from a sin. After all, isn't getting to take a deserved break why we expend effort in the first place?...
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How to Nudge People Toward Smarter Cancer-Screening Decisions

How to Nudge People Toward Smarter Cancer-Screening Decisions | Bounded Rationality and Beyond | Scoop.it

It's a System 1 and System 2 thing.When it comes to cancer screening, there's no one correct answer that applies to every scenario. Different people face different risk factors, and you can't screen every person for every possible type of cancer, so it's a matter of cost-benefit analysis — some types of screenings are more likely to lead to potentially harmful false positives, for example, while others, if they detect cancer, will detect slow-growing forms of it that are very unlikely to kill or seriously harm the patient before something else does, so determining the "right" amount of cancer screening is a really difficult public-health challenge.

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More Encouragement to Walk the Stairs Peter Ubel Duke

More Encouragement to Walk the Stairs Peter Ubel Duke | Bounded Rationality and Beyond | Scoop.it

A while back, I posted an interesting effort to get people to walk upstairs, rather than take the escalator. It involved a staircase designed to look like a piano, with musical sounds generated when people stepped on each stair. I love that approach not only because it is clever, but because I am a serious pianist. It appealed to my inner musician.

For those more visually inclined, here is another interesting set of stairs, in a picture brought to my attention by Bob Peck (@MakeABetterOne).

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What PR Professionals Can Learn from Behavioral Economics - Business 2 Community

What PR Professionals Can Learn from Behavioral Economics - Business 2 Community | Bounded Rationality and Beyond | Scoop.it

According to Wikipedia, behavioral economics is the study of how social, cognitive and emotional factors impact the economic decisions of individuals and institutions. Said another way, it’s insight on how individuals and groups make choices.

Often, this insight is the information PR teams need to design programs that tie back to business goals. When we know how our end-audiences make decisions, we can build a program that motivates them to act.

This is good news for the PR profession. It’s hard to measure the ROI of awareness. It’s much easier to measure the ROI of action.


Read more at http://www.business2community.com/public-relations/pr-professionals-can-learn-behavioral-economics-0816227#eIo711S8QiBT4Qvr.99

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Predicting irrational #shoppers: Commerce Sciences applies behavioral economics to #ecommerce

Predicting irrational #shoppers: Commerce Sciences applies behavioral economics to #ecommerce | Bounded Rationality and Beyond | Scoop.it
Behavioral economics, as its well-known proponent Dan Ariely describes it, “is interested in the same questions as classical economics, but without assuming that people are rational.”

The field came to popular attention in the past decade from the bestselling “Freakonomics” books (er, empire), Ariely’s and Daniel Kahneman’s fascinating work, and from other behavioral economists identifying sources of the financial crisis that their classical counterparts failed to red flag. Richard Thaler and Cass Sunstein’s 2008 behavioral econ work “Nudge” made such a splash that its authors and their students now impact international public policy in significant ways.

So it’s about time behavioral economics began banking some consumer internet coin, right?..


Via Nebojsa Stojanovic
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The rise and fall of cognitive skills

The rise and fall of cognitive skills | Bounded Rationality and Beyond | Scoop.it
Neuroscientists find that different parts of the brain work best at different ages.

Scientists have long known that our ability to think quickly and recall information, also known as fluid intelligence, peaks around age 20 and then begins a slow decline. However, more recent findings, including a new study from neuroscientists at MIT and Massachusetts General Hospital (MGH), suggest that the real picture is much more complex.

The study, which appears in the journal Psychological Science, finds that different components of fluid intelligence peak at different ages, some as late as age 40.

“At any given age, you’re getting better at some things, you’re getting worse at some other things, and you’re at a plateau at some other things. There’s probably not one age at which you’re peak on most things, much less all of them,” says Joshua Hartshorne, a postdoc in MIT’s Department of Brain and Cognitive Sciences and one of the paper’s authors.

“It paints a different picture of the way we change over the lifespan than psychology and neuroscience have traditionally painted,” adds Laura Germine, a postdoc in psychiatric and neurodevelopmental genetics at MGH and the paper’s other author.

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Co-evolutionary Dynamics of Collectiv Action with Signaling for a Quorum

Abstract Collective signaling for a quorum is found in a wide range of organisms that face collective action problems whose successful solution requires the participation of some quorum of the individuals present. These range from humans, to social insects, to bacteria. The mechanisms involved, the quorum required, and the size of the group may vary. Here we address the general question of the evolution of collective signaling at a high level of abstraction. We investigate the evolutionary dynamics of a population engaging in a signaling N-person game theoretic model. Parameter settings allow for loners and cheaters, and for costly or costless signals. We find a rich dynamics, showing how natural selection, operating on a population of individuals endowed with the simplest strategies, is able to evolve a costly signaling system that allows individuals to respond appropriately to different states of Nature. Signaling robustly promotes cooperative collective action, in particular when coordinated action is most needed and difficult to achieve. Two different signaling systems may emerge depending on Nature’s most prevalent states.

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oTree - An Open-Source Platform for Laboratory, Online, and Field Experiments

Abstract: oTree is an open-source and online software for implementing interactive experiments in the laboratory, online, the field or combinations thereof. oTree does not require installation of software on subjects’ devices; it can run on any device that has a web browser, be that a desktop computer, a tablet or a smartphone. Deployment can be internet-based without a shared local network, or local-network-based even without internet access. For coding, Python is used, a popular, open-source programming language. www.oTree.org provides the source code, a library of standard game templates and demo games which can be played by anyone.
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Co-evolutionary Dynamics of Collective Action with Signaling for a Quorum

Co-evolutionary Dynamics of Collective Action with Signaling for a Quorum | Bounded Rationality and Beyond | Scoop.it
Author Summary From humans to social insects and bacteria, decision-making is often influenced by some form of collective signaling, be it quorum, information exchange, pledges or announcements. Here we investigate how such signaling systems evolve when collective action entails a public good, and how meanings co-evolve with individual choices, given Nature’s most prevalent states. We find a rich scenario, showing how natural selection is able to evolve a costly quorum signaling system that allows individuals to coordinate their action so as to provide the appropriate response to different states of Nature. We show that signaling robustly and selectively promotes cooperative collective action when coordinated action is most needed. In light of our results, and despite the complexity that collective action relying on quorum signaling may entail, it is not so surprising how signaling is a ubiquitous property of the living world.
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Why Economists Cling to Discredited Ideas

Why Economists Cling to Discredited Ideas | Bounded Rationality and Beyond | Scoop.it

Free-market theory may be at odds with reality, but it fits the needs of the rich and the powerful. Despite the practical failures of free-market economics, too many mainstream economists have continued to embrace simplistic ideas about how the economy works. Such ideas are often rooted more in ideology than in evidence. These beliefs and the policies that follow led directly to the 2008 financial crisis and the Great Recession. They also centrally contributed to the nation’s subpar performance beginning in the late 1970s, and to our widening inequality. They continue to endanger America’s economic health.  

The mainstream of the profession claims to qualify oversimplified free-market ideas. But when it comes to key policy choices, the premise that markets are efficient usually trumps a more complex analysis. Thus, most mainstream economists are usually for less regulation even when more is required. They argue for reducing deficits even when expanded public outlay is indicated. They favor letting markets set wages without many safeguards for workers, even when the result proves neither equitable nor efficient. The consensus in the profession is that widening inequality must be the result of deficiencies in the skills of the workforce, rather than the result of structural disadvantages inadequately addressed by government. 

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The cognitive basis of social behavior: cognitive reflection overrides antisocial but not always prosocial motives

Abstract: Even though human social behavior has received considerable scientific attention in the last decades, its cognitive underpinnings are still poorly understood. Applying a dual-process framework to the study of social preferences, we show in two studies that individuals with a more reflective/deliberative cognitive style, as measured by scores on the Cognitive Reflection Test (CRT), are more likely to make choices consistent with “mild” altruism in simple non-strategic decisions. Such choices increase social welfare by increasing the other person’s payoff at very low or no cost for the individual. The choices of less reflective individuals (i.e. those who rely more heavily on intuition), on the other hand, are more likely to be associated with either egalitarian or spiteful motives. We also identify a negative link between reflection and choices characterized by “strong” altruism, but this result holds only in Study 2. Moreover, we provide evidence that the relationship between social preferences and CRT scores is not driven by general intelligence. We discuss how our results can reconcile some previous conflicting findings on the cognitive basis of social behavior.
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Why Brain Science and Beer Go Hand-In-Hand

Why Brain Science and Beer Go Hand-In-Hand | Bounded Rationality and Beyond | Scoop.it

Beer and neuroscience -- an unlikely combination, you might think, for anything other than a collegiate shooting the breeze over drinks. But in my field of study -- olfaction -- they can be tightly intertwined.

I work to uncover the neural mechanisms of how we learn about a new odor. The parallels between olfactory research and beer start with some basics: They have overlapping chemistry terminology ("esters", "volatile compounds"), and the craft of brewing beer camouflages as one application of the scientific method, with plenty of trial-and-error and hypothesis testing.

No, it's not your imagination. Beer isn't something that smells good to most people at first. In fact, just a few years ago, I actually disliked beer. But since then, I've slowly amassed a mental library of styles and flavors that I've encountered, those I like, and those I'll pass on next time. These learning experiences are not unlike the ones of brewers or chefs or perfumists. Important to my work, we know that even things that once smelled or tasted repulsive can come to be pleasurable. So how do we form new odor representations, and how are they affected by learning and experience?

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How To Develop Social Media Strategies | In Articles Zone

How To Develop Social Media Strategies | In Articles Zone | Bounded Rationality and Beyond | Scoop.it

Both large and small companies are in the process of getting to understand how they can be involved in social media strategies. You will get to realize that by indulging social media in marketing, there will be a positive outcome in regard to what it is that you want the people to know. The first thing that should be considered is to have some measurable goals which are manageable.

It is vital that everyone gets to work together. Collaborating as a team will ensure the success in the project. The company should learn to listen to what their employees have to say and the ideas that they are coming up with. This will make it possible for them to integrate social media into the market.

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How to predict customer behaviour

How to predict customer behaviour | Bounded Rationality and Beyond | Scoop.it

One of the biggest frustrations in business is trying to predict what your customers will do in response to an initiative. 

Excavating my new backyard recently, I found a whole lot of paving that had been overrun by grass.

It struck me that this is not dissimilar to how we typically look at those we are trying to influence – we have based our assumptions on the grass we see before us when if we dig a little deeper we’ll find a whole pattern of robust pavers just waiting to make our lives easier.

 

But what will they do?

One of the biggest frustrations in business is trying to predict what your customers (stakeholders, clients, staff, investors, managers…) will do in response to your initiative.

As a result, we base our best guess on any or all of the following:

Feedback: What they tell usExperience: What they’ve done in the pastIntuition: How we assume people behave

Unfortunately there are traps in relying on these methods.

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The Power of Nudges

Verhaltensökonomie ist nicht Nudging – Aber Nudging ist Verhaltensökonomie The Power of Nudges – Einsatz und Grenzen sanfter Stupser - Behavioral Economics Net…

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Why People "Fly from Facts"

Why People "Fly from Facts" | Bounded Rationality and Beyond | Scoop.it

Research shows the appeal of untestable beliefs, and how it leads to a polarized society. 

There was a scientific study that showed vaccines cause autism.”

“Actually, the researcher in that study lost his medical license, and overwhelming research since then has shown no linkbetween vaccines and autism.”

“Well, regardless, it’s still my personal right as a parent to make decisions for my child.”

Does that exchange sound familiar: a debate that starts with testable factual statements, but then, when the truth becomes inconvenient, the person takes a flight from facts.

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Noahpinion: A grand unified theory of behavioral economics?

Noahpinion: A grand unified theory of behavioral economics? | Bounded Rationality and Beyond | Scoop.it
What if we've already discovered the Grand Unified Theory of Behavioral Economics? http://t.co/94s81LSSKk

Via Peter Boettke
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