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News on the effects of bounded rationality in economics and business, relationships and politics
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Dan Ariely's revised model of labor | Daniel Pink

Dan Ariely's revised model of labor | Daniel Pink | Bounded Rationality and Beyond | Scoop.it
Below is a fantastic TED Talk from Dan Ariely on why people work hard, when they're willing to make extreme efforts, and how easy it is to crush their.

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Behavioral Portfolio Management: Emotions and Volatility Are Key to Successful Implementation

Behavioral Portfolio Management: Emotions and Volatility Are Key to Successful Implementation | Bounded Rationality and Beyond | Scoop.it

Despite numerous studies attemptin to link volatility to changing fundamentals, research shows that investor emotions are the root cause of the vast majority of these price changes, according to C........

Particularly germane to implementing behavioral portfolio management is understanding Howard’s views on emotions and volatility, and how he handles them when managing money. Recall that Howard is professor emeritus at Daniels College of Business, University of Denver, and co-founder of AthenaInvest, whose Athena Pure Valuation is one of the top performing portfolios in recent years.

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Nudge – Making policy through a behavioural lens » Institute for Research on Public Policy

Nudging in action has given us more insight into the way people make decisions. The key now is to use that knowledge to design more realistic policies.Five years ago, Richard Thaler and Cass Sunstein published Nudge: Improving Decisions about Health, Wealth and Happiness, a book that asked us to fundamentally change the way we think about how policy is made. Nudgechallenged the prevailing approaches to policy-making and governance that were grounded in the appealing idea that human beings are rational decision-makers, cognitively sophisticated enough to process all relevant information and unswayed by emotion. It presented several years’ worth of research to demonstrate that, by contrast, our decision-making is surprisingly malleable and therefore dramatically influenced by context. And if that is the case, Thaler and Sunstein asked, is it not possible to create the context that steers people toward the right choice (or at least the one we believe brings about the greatest common good)?

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Sendhil Mullainathan: Solving social problems with a nudge | Video on TED.com

MacArthur winner Sendhil Mullainathan uses the lens of behavioral economics to study a tricky set of social problems -- those we know how to solve, but don't.
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Roy Sheneman, PhD's curator insight, July 25, 2013 8:31 AM

Hmmm, interesting perspective

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Is Behavioral Economics the Death of Living Wills?

Is Behavioral Economics the Death of Living Wills? | Bounded Rationality and Beyond | Scoop.it
As a physician who conducts research on decision-making, I have been asked many times: What does behavioral economics teach us about the role of living wills in medical care?
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Neuroeconomics in Context with Chris Farrell

July 7, 2009 - UBS Forum Lounge, Minnesota Public Radio Krista sat down with Chris Farrell, chief economics correspondent for American Public Media, to get a broader…
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ScienceDirect.com - Evolution and Human Behavior - Natural-field dictator game shows no altruistic giving

ScienceDirect.com - Evolution and Human Behavior - Natural-field dictator game shows no altruistic giving | Bounded Rationality and Beyond | Scoop.it
Abstract

Economic experiments are increasingly being used in a number of research areas and are a major source of data guiding the debate surrounding the nature of human prosociality. The degree to which experiment behavior accurately reflects external behavior, however, has long been debated. A number of recent studies have revealed just how remarkably sensitive participants are to cues of a lack of anonymity. Similarly, others have suggested that the very structure of the experimental context induces participants to choose prosocial options. In order to truly create anonymous conditions and to eliminate the effects of experimental contexts, participants must not be aware of their participation. Here, I present the results of a natural-field Dictator Game in which participants are presented with a believable endowment and provided an opportunity to divide the endowment with a stranger without knowing that they are taking part in an experiment. No participants gave any portion of the endowment to the stranger. Baseline frequencies of prosocial behaviors exhibited under experimental contexts might therefore be substantially inflated compared to those exhibited under natural contexts.

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Applications in Agent-Based Computational Economics - Munich Personal RePEc Archive

Applications in Agent-Based Computational Economics - Munich Personal RePEc Archive | Bounded Rationality and Beyond | Scoop.it
Abstract

 

A constituent feature of adaptive complex system are non-linear feedback mechanisms between actors. This makes it often difficult to model and analyse them. Agent-based Computational Economics (ACE) uses computer simulation methods to represent such systems and analyse non-linear processes.

The aim of this thesis is to explore ways of modelling adaptive agents in ACE models. Its major contribution is of a methodological nature. Artificial intelligence and machine learning methods are used to represent agents and learning processes in ACE models.

In this work, a general reinforcement learning framework is developed and realised in a simulation system. This system is used to implement three models of increasing complexity in two different economic domains. One of these domains are iterative games in which agents meet repeatedly and interact. In an experimental labour market, it is shown how statistical discrimination can be generated simply by means of the learning algorithm used. The aim of this model is mainly to illustrate the features of the learning framework. The results resemble actual patterns of observed human behaviour in laboratory settings. The second model treats strategic network formation. The main contribution here is to show how agent-based modelling helps to analyse non-linearity that is introduced when assumptions of perfect information and full rationality are relaxed. The other domain has a Health Economics background. The aim here is to provide insights of how the approach might be useful in real-world applications. For this, a general model of primary care is developed, and the implications of different consumer behaviour (based on the learning features introduced before) analysed.

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The Confirmation Bias: Why It’s Hard to Change Your Mind — PsyBlog

The Confirmation Bias: Why It’s Hard to Change Your Mind — PsyBlog | Bounded Rationality and Beyond | Scoop.it
People search for information that confirms their view of the world and ignore what doesn't fit.

In an uncertain world, people love to be right because it helps us make sense of things. Indeed some psychologists think it's akin to a basic drive.

One of the ways they strive to be correct is by looking for evidence that confirms they are correct, sometimes with depressing or comic results:

A woman hires a worker that turns out to be incompetent. She doesn't notice that everyone else is doing his work for him because she is so impressed that he shows up every day, right on time.A sports fan who believes his team is the best only seems to remember the matches they won and none of the embarrassing defeats to inferior opponents.A man who loves the country life, but has to move to the city for a new job, ignores the flight-path he lives under and noisy-neighbours-from-hell and tells you how much he enjoys the farmer's market and tending his window box.

We do it automatically, usually without realising. We do it partly because it's easier to see where new pieces fit into the picture-puzzle we are working on, rather than imagining a new picture. It also helps shore up our vision of ourselves as accurate, right-thinking, consistent people who know what's what.

Psychologists call it the confirmation bias and it creeps into all sorts of areas of our lives. Here are a few examples:

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The Psychology of Motivation Explained (in under 300 words) — PsyBlog

The Psychology of Motivation Explained (in under 300 words) — PsyBlog | Bounded Rationality and Beyond | Scoop.it
Three factors that can transform work into play.

Roughly speaking there are only two reasons you do anything in life:

Because you want to.Because someone else wants you to.

The first category of internally motivated activities might include things like eating, socialising, hobbies and going on holiday. The second category of externally motivated activities might include working a job, studying, or loading the dishwasher.

The reason I say 'roughly speaking' and 'might include' is because the two types of motivation can be difficult to disentangle. Yes, you enjoy your work, but would you do it for less money or for free? Maybe, maybe not. Yes, my wife wants me to load the dishwasher, but maybe I'd do it anyway. Or maybe not.

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Come Nascono gli Stereotipi: i Processi Cognitivi | Psicolab

Come Nascono gli Stereotipi: i Processi Cognitivi | Psicolab | Bounded Rationality and Beyond | Scoop.it
Gli stereotipi nascono dal processo di categorizzazione (Tajifel 1969), ovvero dalle modalità che gli individui adottano per ordinare e semplificare la realtà, raggruppando persone, oggetti ed eventi in categorie, in base alla loro somiglianza...
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The neurochemistry of musi Mona Lisa Chanda and Daniel J. Levitin

Music is usedto regulatemoodand arousal in everyday life and to promote physical and psychological health and well-being in clinical settings. However, scientific inquiry into the neurochemical effects of music is still
in its infancy. In this review, we evaluate the evidence that music improves health and well-being through the engagement of neurochemical systems for (i) reward, motivation, and pleasure; (ii) stress and arousal; (iii) immunity; and (iv) social affiliation. We discuss the limitations of these studies and outline novel approaches for integration of conceptual and technological advances from the fields of music cognition and social neuroscience into studies of the neurochemistry of music.

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A Inteligência Emocional no Trabalho e na Empresa | Egrégora Consultoria Empresarial

A Inteligência Emocional no Trabalho e na Empresa | Egrégora Consultoria Empresarial | Bounded Rationality and Beyond | Scoop.it
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Is Behavioral Economics the Death of Living Wills? - Forbes

Is Behavioral Economics the Death of Living Wills?
Forbes
As a physician who conducts research on decision-making, I have been asked many times: What does behavioral economics teach us about the role of living wills in medical care?

Via Phil Jones
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Behavioral Portfolio Management: An Alternative to Modern Portfolio Theory

Behavioral Portfolio Management: An Alternative to Modern Portfolio Theory | Bounded Rationality and Beyond | Scoop.it
As modern portfolio theory fades in reputation from intense pressure from behavioral finance, many researchers are seeking to fill the void with behavioral finance applications. Behavioral portfoli..Seeking to bridge the divide between modern portfolio theory and behavioral finance, is C. Thomas Howard’s“Behavioral Portfolio Management.” Howard is professor emeritus at Daniels College of Business, University of Denver, and co-founder of AthenaInvest. Application of his behavioral portfolio management has resulted in Athena’s longest running portfolio, Athena Pure Valuation, generating a return over 11 years of 26.1%. Compare that to the Russell 2000 benchmark, which returned 10.6%. Further, Athena Pure is the top performing portfolio in the country over this time period when compared to the active equity mutual fund universe.
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How does my brain work? | TED Playlists | TED

How does my brain work? | TED Playlists | TED | Bounded Rationality and Beyond | Scoop.it
How exactly does the brain -- a 3-pound snarl of nervous tissue -- create inspired inventions, the feeling of hunger, the experience of beauty, the sense of self?
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The psychology of energy savings: A Q&A with Alex Laskey and Sendhil Mullainathan | TED Blog

The psychology of energy savings: A Q&A with Alex Laskey and Sendhil Mullainathan | TED Blog | Bounded Rationality and Beyond | Scoop.it

“For the past five years we’ve been running the largest behavioral science experiment in the world,” says Alex Laskey in today’s TED Talk, given at this year’s 2013 conference in Long Beach. “And, it’s working.”

Alex Laskey: How behavioral science can lower your energy billLaskey’s company Opower partners with utility companies to deliver personalized home energy reports, all based off the insight that people are more inclined to take action on an issue when they think other people are doing better than they are. People’s energy consumption changes for the better after receiving these reports — either in the mail or through their app and website — and the effects appear to be long-lasting. This year, Laskey says, Opower expects to inspire 2 terawatt hours (TWh) in saved electricity. That’s enough to power a city of more than a quarter million people for a year.

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Semi-bounded Rationality: A model for decision making

Abstract: In this paper the theory of semi-bounded rationality is proposed as an extension of the theory of bounded rationality. In particular, it is proposed that a decision making process involves two components and these are the correlation machine, which estimates missing values, and the causal machine, which relates the cause to the effect. Rational decision making involves using information which is almost always imperfect and incomplete as well as some intelligent machine which if it is a human being is inconsistent to make decisions. In the theory of bounded rationality this decision is made irrespective of the fact that the information to be used is incomplete and imperfect and the human brain is inconsistent and thus this decision that is to be made is taken within the bounds of these limitations. In the theory of semi-bounded rationality, signal processing is used to filter noise and outliers in the information and the correlation machine is applied to complete the missing information and artificial intelligence is used to make more consistent decisions.

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The Regulation of Ant Colony Foraging Activity without Spatial Information

The Regulation of Ant Colony Foraging Activity without Spatial Information | Bounded Rationality and Beyond | Scoop.it
Many dynamical networks, such as the ones that produce the collective behavior of social insects, operate without any central control, instead arising from local interactions among individuals. A well-studied example is the formation of recruitment trails in ant colonies, but many ant species do not use pheromone trails. We present a model of the regulation of foraging by harvester ant (Pogonomyrmex barbatus) colonies. This species forages for scattered seeds that one ant can retrieve on its own, so there is no need for spatial information such as pheromone trails that lead ants to specific locations. Previous work shows that colony foraging activity, the rate at which ants go out to search individually for seeds, is regulated in response to current food availability throughout the colony's foraging area. Ants use the rate of brief antennal contacts inside the nest between foragers returning with food and outgoing foragers available to leave the nest on the next foraging trip. Here we present a feedback-based algorithm that captures the main features of data from field experiments in which the rate of returning foragers was manipulated. The algorithm draws on our finding that the distribution of intervals between successive ants returning to the nest is a Poisson process. We fitted the parameter that estimates the effect of each returning forager on the rate at which outgoing foragers leave the nest. We found that correlations between observed rates of returning foragers and simulated rates of outgoing foragers, using our model, were similar to those in the data. Our simple stochastic model shows how the regulation of ant colony foraging can operate without spatial information, describing a process at the level of individual ants that predicts the overall foraging activity of the colony.
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Learn Good Management From Bees and Golfers

Learn Good Management From Bees and Golfers | Bounded Rationality and Beyond | Scoop.it

Delegate. Develop others. Build consensus. Be decisive. Think strategically. Ah, yes, the keys to being an effective manager and leader all tied up in such neat little buzzwords and phrases. So neat, in fact, that it can be hard to unpack these concepts and dive into what it actually means to effectively delegate or develop others.

 

Decoding the most important but hard-to-explain qualities that set the best leaders apart from the rest is the focus of a new column on the newly-launched BBC Capital.

 

Turns out, you can learn a lot from the world of professional golf about delegation. Consider the relationship between golfers and their caddies.

“Caddies don’t just carry around a pro-golfer’s bag. They spend hours doing course research so they can suggest which club to use on each shot,” writes Eric Barton in Leader Board.

 

And it doesn’t always work out, as Barton details in the debut column, “Real delegation requires something unexpected.” Sometimes, the caddie suggests a shot and it goes all wrong. But it’s rare for a golfer to place blame on his caddie or regret delegating such a big decision. That’s largely because the relationship is built on trust and, ahem, letting go of control of important tasks—even when the outcome impacts you directly.

 

The caddie-golfer relationship is an example of all that goes right with effective delegation, writes Barton. Too often managers want to hand out only secondary assignments to the people who work for them, keeping the best or key tasks as their own. It’s human nature—we want to be responsible for our own professional fates. But the most effective delegators hand down plumb assignments and support employees while they figure out how to complete them. The key: Hiring and developing people you can trust.


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Are risk preferences dynamic? Within-subject variation in risk-taking as a function of background music

This paper investigates whether preference interactions can explain why risk preferences change over time and across contexts. We conduct an experiment in which subjects accept or reject gambles involving real money gains and losses. We introduce within-subject variation by alternating subjectively liked music and disliked music in the background. We find that favourite music increases risk-taking, and disliked music suppresses risk-taking, compared to a baseline of no music. Several theories in psychology propose mechanisms by which mood affects risktaking, but none of them fully explain our results. The results are, however, consistent with preference complementarities that extend to risk preference. --

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Conscience Accounting: Emotional Dynamics and Social Behavior

Abstract: We develop a dynamic model where people decide in the presence of moral constraints and test the predictions of the model through two experiments. Norm violations induce a temporal feeling of guilt that depreciates with time. Due to such fluctuations of guilt, people exhibit an endogenous temporal inconsistency in social preferences—a behavior we term conscience accounting. In our experiments people first have to make an ethical decision, and subsequently decide whether to donate to charity. We find that those who chose unethically were more likely to donate than those who did not. As predicted, donation rates were higher when the opportunity to donate came sooner after the unethical choice than later. Combined, our theoretical and empirical findings suggest a mechanism by which prosocial behavior is likely to occur within temporal brackets following an unethical choice.

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How to Overcome Mean World Syndrome

How to Overcome Mean World Syndrome | Bounded Rationality and Beyond | Scoop.it
The basic idea behind mean world syndrome is that too much exposure to violence and crime through TV, movies, music, video games, and culture can influence some individuals to believe that we live in an inherently evil and mean world.
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Panel Discussion | Debating "The Heuristics Debate" Part-1

On November 4th, 2011 Stanford Law School hosted two panels discussing Professor Mark Kelman's book, The Heuristics Debate. The first panel featured Paul Bre...
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Applying Behavioural Economics to Reduce Insurance FraudPrimeDecision

Applying Behavioural Economics to Reduce Insurance FraudPrimeDecision | Bounded Rationality and Beyond | Scoop.it

Behavioural economics offers a fascinating possibility for tackling the problem of insurance fraud. Most insurance fraud isn’t carried out by weathered criminals, it’s conducted by ordinary people who exaggerate on their claim forms. Although it might be viewed as a small slice of the total claim amount, this adds up to a major problem for insurers and customers alike, for each year the cost translates into seemingly ever-increasing premiums.

There is a growing evidence-base for the power of context in influencing honesty, so we wanted to explore how these psychological principles could be applied to enhance the effectiveness of customer communications.


Via Ahmet Murat Seferoglu
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