Bounded Rationality and Beyond
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News on the effects of bounded rationality in economics and business, relationships and politics
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The Asch Experiments: Why Do We Feel the Need to Conform?

The Asch Experiments: Why Do We Feel the Need to Conform? | Bounded Rationality and Beyond | Scoop.it

Do you think of yourself as a conformist or a non-conformist? If you are like most people, you probably believe that you are non-conformist enough to stand up to a group when you know you are right, but conformist enough to blend in with the rest of your peers.

 

Imagine yourself in this situation: You've signed up to participate in a psychology experiment in which you are asked to complete a vision test. Seated in a room with the other participants, you are shown a line segment and then asked to choose the matching line from a group three segments of different lengths. The experimenter asks each participant individually to select the matching line segment. On some occasions everyone in the group chooses the correct line, but occasionally, the other participants unanimously declare that a different line is actually the correct match.

 

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The Neuropeptide Oxytocin Regulates Parochial Altruism in Intergroup Conflict Among Humans

ABSTRACT

Humans regulate intergroup conflict through parochial altruism; they self-sacrifice to contribute to in-group welfare and to aggress against competing out-groups. Parochial altruism has distinct survival functions, and the brain may have evolved to sustain and promote in-group cohesion and effectiveness and to ward off threatening out-groups. Here, we have linked oxytocin, a neuropeptide produced in the hypothalamus, to the regulation of intergroup conflict. In three experiments using double-blind placebo-controlled designs, male participants self-administered oxytocin or placebo and made decisions with financial consequences to themselves, their in-group, and a competing out-group. Results showed that oxytocin drives a “tend and defend” response in that it promoted in-group trust and cooperation, and defensive, but not offensive, aggression toward competing out-groups.

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The Neuroscience Of Being A Good Leader

The Neuroscience Of Being A Good Leader | Bounded Rationality and Beyond | Scoop.it

Neuroscience has gained so much popularity in the last few years, because of advancements made by scientists in human nature and behavior change. I find neuroscience so interesting, and have been spending a lot of my free time learning more about it.  All of this research is especially relevant for being a good leader in the workplace, where executives need to change the behavior of potentially thousands of employees. But getting people to change their behavior is easier said than done. Change literally hurts us. In studies of people who have had coronary bypass surgery, only one in nine people adopt healthier day-to-day habits. I won’t go into too much detail behind why this is, but it’s basically because of the parts of the brain that are used to develop new habits vs continuing with old habits. The part of the brain used to build new habits uses a lot more energy than the part that’s used for old habits. A simple example is when someone that’s been driving a car for years goes somewhere in the world where they drive on the other side of the road. They find that driving incredibly difficult.

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Men and Women Process Emotions in Different Ways: This Affects What They Remember — PsyBlog

Men and Women Process Emotions in Different Ways: This Affects What They Remember — PsyBlog | Bounded Rationality and Beyond | Scoop.it

Study of 3,000+ finds men and women process emotions differently and this affects what they remember. 

Women rate emotional images as more stimulating and are more likely to remember them than men, a new study finds.

While strong emotions tend to boost memory for both men and women, this neuroimaging study may help explain why women often outperform men on memory tests.

The results come from a very large study of 3,398 people who took part in four different trials.

Both men and women were asked to look at a series of pictures, some of which were emotionally arousing and others which were neutral.

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Prof. Hankell's curator insight, January 23, 2015 8:16 AM

The results, published in the Journal of Neuroscience, showed that women found the emotional pictures — and especially the negative pictures — more stimulating than the men...

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Senior Lectures: Ralph Abraham - Complex Dynamical Systems - YouTube

2010 lecture by Ralph Abraham to Ross School Seniors on the history of mathematics leading to the development of Complex Dynamical Systems Theory and the impact that Chaos Theory had on this 'new' branch of mathematics.
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A response to Dolan

Paul Dolan argues that there are two broad approaches to behavioural change: changing minds and changing contexts. He argues that while the former approach relies more heavily on conscious and reasoned processes, the latter predominantly deals with the subconscious, automated system of the human brain and attempts to facilitate change by altering the ‘environmental context’ in which people make decisions. In particular, he notes that the latter approach (i.e. changing contexts) has received relatively little attention in the past and that, by focusing on altering people’s choice environment, ‘mindspace’ represents a promising framework for improving the public’s financial capabilities. In explaining the rationale behind the development and application of the mindspace framework, he states: ‘new models of behaviour change are needed in general, and in consumer finance in particular, as existing theories and methods leave a substantial proportion of the variance in behaviour, beyond the effect of rational (conscious) intentions, to be explained’ 

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Nudging e Salute: un binomio possibile?

Abstract: Il termine inglese nudging viene tradotto in italiano con la locuzione “spinta gentile”. Esso indica un’azione svolta dallo Stato diretta ad incentivare (o disincentivare) comportamenti individuali ritenuti benefici (o nocivi) per il soggetto stesso che li compie. L’ipotesi teorica che sta alla base di tale pratica è che le scelte che il consumatore può compiere non rispondano sempre ai postulati di razionalità propri della teoria neoclassica del consumatore. Si ipotizza l’esistenza di due tipi di consumatore l’Homo Economicus, definito anche “Econ”, che è in grado di compiere scelte che rispettano i postulati propri della teoria neoclassica del consumatore e l’Homo Sapiens, o “Human”, che compie errori sistematici nell’effettuare le proprie scelte. In questo paper, dopo aver esposto i tratti principali del nudging, si analizzano in modo critico gli aspetti teorici e leimplicazioni di policy di tale teoria.
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Individual perceptions of local crime risk

Abstract: We provide evidence that perceptions of crime risk are severely biased for many years after a move to a new neighborhood. Based on four successive waves of a large crime survey, matched with administrative records on household relocations, we find that the longer an individual lives in a neighborhood, the higher their perception of the crime rate in the neighborhood. This finding holds irrespective of whether the move is from a relatively low-crime to a relatively high-crime area or vice versa. We find that avoidance behavior adjusts in line with the observed changes in beliefs.
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Accounting for Context: Separating Monetary and Social Incentives

Abstract: This paper proposes a simple framework to model social preferences in a game theoretic framework which explicitly separates economic incentives from social (context) effects. It is argued that such a perspective makes it easier to analyse contextual effects. Moreover, the framework is used to exemplify both theoretically and empirically how contextual variables such as social norms can worsen a social dilemma or possibly make it disappear. The empirical results of a randomised controlled classroom experiment show that women are more responsive to such contextual effects and that social agreements can also worsen economic inefficiencies
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Exploring brain activity in neuroeconomics

ABSTRACT: Neuroeconomics uses various methodologies to study the neural underpinning of economic decision-making. The goal of the present article is to briefly introduce the most frequently used methods. The main functioning, properties and features, including advantages and limits, of Positron Emission Tomography (PET), functional Magnetic Resonance Imaging (fMRI), Electroencephalography (EEG), Magnetoencephalography (MEG), and Transcranial Stimulation (TMS and tDCS) will be discussed.
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Emotions-at-risk: An experimental investigation into emotions, option prices and risk perception

Abstract: This paper experimentally investigates how emotions are associated with option prices and risk perception. Using a binary lottery, we find evidence that the emotion 'surprise' plays a significant role in the negative correlation between lottery returns and estimates of the price of a put option. Our findings shed new light on various existing theories on emotions and affect. We find gratitude, admiration, and joy to be positively associated with risk perception, although the affect heuristic predicts a negative association. In contrast with the predictions of the appraisal tendency framework (ATF), we document a negative correlation between option price and surprise for lottery winners. Finally, the results show that the option price is not associated with risk perception as commonly used in psychology.
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Ask Ariely: On Honoring Housework, BE to Business, and Laundering Linens

Ask Ariely: On Honoring Housework, BE to Business, and Laundering Linens | Bounded Rationality and Beyond | Scoop.it
Here's my Q&A column from the WSJ this week — and if you have any questions for me, you can tweet them to @danariely with the hashtag #askariely, post a comment on my Ask Ariely Facebook page, or email them to AskAriely@wsj.com. ______________________________________________________ Many women don’t feel recognized for all the work they do at home. When their husbands come home late from the…
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Risk Perception and Affect

Abstract

Humans perceive and act on risk in two fundamental ways. Risk as feelings refers to individuals' instinctive and intuitive reactions to danger. Risk as analysis brings logic, reason, and scientific deliberation to bear on risk management. Reliance on risk as feelings is described as “the affect heuristic.” This article traces the development of this heuristic and discusses some of the important ways that it impacts how people perceive and evaluate risk.

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Stanford study finds walking improves creativity

Stanford study finds walking improves creativity | Bounded Rationality and Beyond | Scoop.it

Stanford researchers found that walking boosts creative inspiration. They examined creativity levels of people while they walked versus while they sat. A person's creative output increased by an average of 60 percent when walking.Many people claim they do their best thinking while walking. A new study finds that walking indeed boosts creative inspiration. Steve Jobs, the late co-founder of Apple, was known for his walking meetings. Facebook's Mark Zuckerberg has also been seen holding meetings on foot. And perhaps you've paced back and forth on occasion to drum up ideas. A new study by Stanford researchers provides an explanation for this. Creative thinking improves while a person is walking and shortly thereafter, according to a study co-authored by Marily Oppezzo, a Stanford doctoral graduate in educational psychology, and Daniel Schwartz, a professor at Stanford Graduate School of Education. The study found that walking indoors or outdoors similarly boosted creative inspiration. The act of walking itself, and not the environment, was the main factor. Across the board, creativity levels were consistently and significantly higher for those walking compared to those sitting. "Many people anecdotally claim they do their best thinking when walking. We finally may be taking a step, or two, toward discovering why," Oppezzo and Schwartz wrote in the study published this week in the Journal of Experimental Psychology: Learning, Memory and Cognition.

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Profiting From Market Randomness

Profiting From Market Randomness | Bounded Rationality and Beyond | Scoop.it
Summary
People believe they can control positive investment outcomes - when in reality, luck, chance, randomness is what mainly drives investment results.It is safe to say that the more someone’s investment performance deviates from the norm, the larger the probability of it coming from luck rather than skill.But since luck always reverts to the mean in the end, investing with the next hotshot fund manager could be a very bad (and unprofitable) decision.Therefore, the best and most cost-effective approach is to become a passive investor and take advantage of the market's long-term upward trend.More sophisticated investors can take it a step further by employing a barbell strategy which combines passive investing with dynamic hedging to protect against market downturns.

In the summer of 2012, I had the unfortunate privilege of attending a private investment conference. On the first day of this two-day event, each attendee was asked to predict what the market (the Dow Jones) would do the next day. To me, this contest seemed like a total waste of time. But after I realized how seriously everyone else was taking it, I decided to play along. I knew that the vast majority of people - expecting the market to remain calm as usual - would predict a small move, like up or down 75 points. So, I decided to have a little fun and predicted the market to be up 300 points. I knew that I would probably lose; but if I won, everyone would think I possessed some special knowledge or insight which they lacked. Sure enough, the next day the Dow was up 287 points, and I won by a huge margin - about 100 points.

After the conference, several dozen people came up to me wanting to know my "secret." Just to amuse myself, I told them that I used a highly accurate, proprietary algorithm that analyzed global news articles in order to predict the market's short-term performance. Of course, all of this was pure fiction. I had no idea what the market was going to do that day, nor did I care very much - I just got lucky. However, the fact that everyone believed me clearly demonstrates the blind faith and ignorance of these so-called "investment experts."

The main purpose of the following article is to help the general reader, as well as experienced investors, better understand and appreciate the role of luck in financial markets. Because only once we have a firm understanding of this mysterious and unpredictable force can we develop strategies to profit from it.

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Noam Chomsky: Are We on the Verge of Total Self-Destruction?

Noam Chomsky: Are We on the Verge of Total Self-Destruction? | Bounded Rationality and Beyond | Scoop.it
If you ask what the world is going to look like, it’s not a pretty picture.

Via jean lievens
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MINDSPACE Influencing behaviour through public policy

Influencing people‟s behaviour is nothing new to Government, which has often used tools such as legislation, regulation or taxation to achieve desired policy outcomes. But many of the biggest policy challenges we are now facing – such as the increase in people with chronic health conditions – will only be resolved if we are successful in persuading people to change their behaviour, their lifestyles or their existing habits. Fortunately, over the last decade, our understanding of influences on behaviour has increased significantly and this points the way to new approaches and new solutions. So whilst behavioural theory has already been deployed to good effect in some areas, it has much greater potential to help us. To realise that potential, we have to build our capacity and ensure that we have a sophisticated understanding of what does influence behaviour. This report is an important step in that direction because it shows how behavioural theory could help achieve better outcomes for citizens, either by complementing more established policy tools, or by suggesting more innovative interventions. In doing so, it draws on the most recent academic evidence, as well as exploring the wide range of existing good work in applying behavioural theory across the public sector. Finally, it shows how these insights could be put to practical use. This report tackles complex issues on which there are wide-ranging public views.We hope it will help stimulate debate amongst policy-makers and stakeholders and help us build our capability to use behaviour theory in an appropriate and effective way.

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Getting a healthy start? Nudge versus economic incentives

Abstract: We compare the effects of economic incentives with a “nudge” (a policy intervention that aims to influence behaviour through changing the “choice architecture”) in relation to improving dietary choices. We study a large-scale, nationally-implemented policy – the UK Healthy Start Scheme – that aimed to increase fruit and vegetable consumption. The policy combined standard economic incentives with elements of nudge, the most important of which is a potential labelling effect. We show that the scheme was successful; the estimated intention to treat effect indicates that spending on fruit and vegetables increased by 15 per cent, or roughly two-thirds of a portion per household per day. The response can be attributed entirely to the economic incentive effects; there is no evidence of any effect from the nudge aspects of the policy. 
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Economists: cheaters with altruistic instincts

Abstract: Based on an experiment conducted with undergraduate students from three different majors (business economics, psychology and engineering), we study the relationship between honesty and altruism. We asked participants to toss a coin with a black and a white side. Participants won a chocolate if they reported the white outcome, whereas no gift was given if they reported black. It was done privately, so they could decide whether or not to cheat. Reporting the prize-losing side (that is, being honest when losing) could result in 3 effects, depending on the 3 conditions run: (i) no penalty, (ii) paying a penalty, or (iii) paying a penalty with an altruistic end (a donation to a non-profit organization). The amount of penalty was decided by each participant and the payment was also done in private. Although we cannot detect dishonesty on an individual level, we use statistical inference to determine cheating behavior. We find suggestive evidence that economics is significantly the most dishonest major when no penalty is involved. With economists in the lead, the results also indicate that all majors cheat if a penalty is requested. Surprisingly, when altruism plays a role, economists tend to have the most altruistic behavior, followed by psychologists. However, altruism does not reduce engineers' propensity to lie. No significant differences are found regarding gender. 
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Nudging: la ‘spinta gentile’ del Grande Fratello

Nudging: la ‘spinta gentile’ del Grande Fratello | Bounded Rationality and Beyond | Scoop.it
La 'spinta gentile' del 'nudging' è considerata una moda e, in effetti, lo è perché il suo scopo è orientare gusti ed esigenze globali verso un modello non scelto direttamente e consapevolmente dal singolo individuo. Chi è al potere tenta di disciplinare una società sempre più globalizzata, confusa e complessa praticando il nudging per suggerire-imporre un indirizzamento delle nostre decisioni. Una forma d'ipnosi, di subdolo intervento a dispetto del nostro libero arbitrio, supportato dai maggiori social network e motori di ricerca (Facebook, Google, Twitter, Whatsapp, Instagram) che sanno tutto di noi, i nostri gusti, i pensieri, i comportamenti e la nostra intera vita tracciata su Internet.
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Narrative and deliberative instauration: The use of narrative as process and artefact in the social construction of institutions

Abstract: Patient Safety is a global institution in the field largely assumed to have emerged following the publication of To Err Is Human by the Institute of Medicine in 1999. In this paper we demonstrate that Patient Safety has been constructed as an institution separately in the practice of anaesthesia since 1954 and in hospitalised care since 1964. The publication of To Err was, in fact, only one of a number of later field configuring events. We use Bruner's (1991) theory of narrative to frame the institution building process which we term deliberative instauration in recognition of the historic literature on the subject. We further link the process of institution building to Vygotsky's theory of social mediation and the use of artefacts in relation to the object of intended action. We conclude that a narrative can be understood as both an artefact and a process used in the social construction of institutions by professional psychological collectives (in this case physicians).
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Improving voluntary public good provision by a non-governmental, endogenous matching mechanism

Abstract: Social norms can help to foster cooperation and to overcome the free-rider problem in private provision of public goods. This paper focuses on the enforcement of social norms by a selfintroduced punishment and reward scheme. We analyse if subjects achieve to implement a normenforcement mechanism at their own expense by applying the theory of non-governmental normenforcement by Buchholz et al. (2014) in a laboratory experiment. Based on their theory without central authority and endogenously determined enforcement mechanism, we implement a twostage public good game: At the first stage subjects determine the strength of penalty/reward on their own and in the second stage they decide on their contributions to the public good. We find that the mechanism by Buchholz et al. (2014) leads to a higher public good contribution than without the use of any mechanism. Only in a few cases groups end up with a zero enforcement mechanism. This result indicates that subjects are apparently willing to contribute funds for implementing an enforcement mechanism. Moreover, higher enforcement parameters lead to higher public good contributions in the second stage, although too high enforcement parameters lead to unreachable theoretical optima. 
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Decision making in uncertain times: what can cognitive and decision sciences say about or learn from economic crises?

Economic crises bring to the fore deep issues for the economic profession and their models. Given that cognitive science shares with economics many theoretical frameworks and research tools designed to understand decision-making behavior, should.  

 

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Bargaining with a residual claimant: ... - Maastricht University

Abstract: We experimentally investigate a bargaining environment in which players negotiate over a xed payment to one player, while the other player receives the residual from a random pie realization after subtracting the xed payment. Contrary to the intuition that risk exposure is detrimental, we show that residual claimants are able to extract a risk premium, which is increasing in risk exposure. In some cases the premium is so high that it is advantageous to bargain over a risky pie rather than a risk-less pie. Contrary to theory, the comparatively less risk averse residual claimants benet the most. Moreover, bargaining frictions increase as risk increases, and we document more frequent disagreements as risk increases. When given the chance to choose a less or more risky distribution over which to bargain, residual claimants tend to choose the more risky distribution only when there is the possibility of an equal-split ex-post. Our results suggest that theoretical bargaining models require some separation between the determinants of bargaining power and fair compensation for risk exposure.
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