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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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Shlomo Benartzi: Risparmiare per il futuro, ....... domani

È facile rinviare il proposito di risparmiare alla prossima settimana, ma se doveste farlo adesso? Di solito preferiamo spendere. L'economista Shlomo Benartzi crede che questo sia uno dei più grandi ostacoli alla concretizzazione di un risparmio sufficiente per quando lasceremo il lavoro, e si chiede: come possiamo trasformare questa sfida comportamentale in una soluzione comportamentale?
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Loss Aversion and Seller Behavior : Evidence from the Housing Market : Comment Working Paper.

In an often quoted article, Genesove and Mayer (2001) observe
that house sellers are reluctant to sell at a loss, and attribute this
finding to loss aversion. I show that loss aversion cannot explain this
phenomenon.

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Split-Brain Patients Reveal Brain's Flexibility: Scientific American

Split-Brain Patients Reveal Brain's Flexibility: Scientific American | Bounded Rationality and Beyond | Scoop.it
Dwayne Godwin is a neuroscientist at the Wake Forest University School of Medicine. Jorge Cham draws the comic strip Piled Higher and Deeper at www.phdcomics.com .

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FastTFriend's curator insight, February 28, 2013 2:12 AM

A short informing take

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The Financial Judgment and Decision Making Process of Women: The Role of Negative Feelings by Victor Ricciardi :: SSRN

The Financial Judgment and Decision Making Process of Women: The Role of Negative Feelings by Victor Ricciardi :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
This is a PDF file of ‘The Financial Judgment and Decision Making Process of Women: The Role of Negative Feelings’ slides from a presentation at the Third Annual Meeting of the Academy of Behavioral Finance & Economics, September 21-23, 2011, UCLA, Los Angeles, CA.

This conference presentation provided an extensive discussion about the literature on academic studies and non-academic research endeavors (e.g., national surveys and polls) in the realm of negative emotions, gender, and decision making. The financial psychology literature on gender and negative feelings documents the hypothesis that women reveal greater degrees of negative affect (emotion) than their male counterparts about money, financial planning, and investment decisions. 

Note: SSRN is experimenting with enabling the distribution of different types of files: slides, spreadsheets, video, etc. This is an upload of a PDF file of PowerPoint slides. We are interested in our users desires to distribute files that go beyond word processing text files. You can communicate with me on these issues via my email address below. We invite you to submit your own presentation slides.

 


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Ecocultural basis of cognition: Farmers and fishermen are more holistic than herders

It has been proposed that social interdependence fosters holistic cognition, that is, a tendency to attend to the broad perceptual and cognitive field, rather than to a focal object and its properties, and a tendency to reason in terms of relationships and similarities, rather than rules and categories. This hypothesis has been supported mostly by demonstrations showing that East Asians, who are relatively interdependent, reason and perceive in a more holistic fashion than do Westerners. We examined holistic cognitive tendencies in attention, categorization, and reasoning in three types of communities that belong to the same national, geographic, ethnic, and linguistic regions and yet vary in their degree of social interdependence: farming, fishing, and herding communities in Turkey's eastern Black Sea region. As predicted, members of farming and fishing communities, which emphasize harmonious social interdependence, exhibited greater holistic tendencies than members of herding communities, which emphasize individual decision making and foster social independence. Our findings have implications for how ecocultural factors may have lasting consequences on important aspects of cognition.

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Modeling Adaptive Cognition in business and beyond - Modeling Adaptive Cognition in business and beyond Université de Lausanne HEC

Modeling Adaptive Cognition in business and beyond - Modeling Adaptive Cognition in business and beyond Université de Lausanne HEC | Bounded Rationality and Beyond | Scoop.it
No matter if you are buying shares or you decide which employee to hire: our daily life is full of decisions. We study how mechanisms of bounded rationality and heuristics affect the decision making of companies, the industry, and political contexts.

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Scientists show how social interaction and teamwork lead to human intelligence

Scientists show how social interaction and teamwork lead to human intelligence | Bounded Rationality and Beyond | Scoop.it

Scientists have discovered proof that the evolution of intelligence and larger brain sizes can be driven by cooperation and teamwork, shedding new light on the origins of what it means to be human. The study appears online in the journal Proceedings of the Royal Society B and was led by scientists at Trinity College Dublin: PhD student, Luke McNally and Assistant Professor Dr Andrew Jackson at the School of Natural Sciences in collaboration with Dr Sam Brown of the University of Edinburgh.

 

The researchers constructed computer models of artificial organisms, endowed with artificial brains, which played each other in classic games, such as the 'Prisoner's Dilemma', that encapsulate human social interaction. They used 50 simple brains, each with up to 10 internal processing and 10 associated memory nodes.

 

The brains were pitted against each other in these classic games. The game was treated as a competition, and just as real life favours successful individuals, so the best of these digital organisms which was defined as how high they scored in the games, less a penalty for the size of their brains were allowed to reproduce and populate the next generation of organisms.


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New research to uncover nuances of networks

New research to uncover nuances of networks | Bounded Rationality and Beyond | Scoop.it

When a species disappears from a region, the rest of the ecosystem may flourish or collapse, depending on the role that species played. When a storm rolls across the coast, the power grid might reconfigure itself quickly or leave cities dark for days. A snowstorm might mean business as usual in a hardy city and a severe food shortage in another, depending on the distribution strategies of residents.

 

Each of these systems is a kind of network, with thousands of members and relationships linking them. Understanding how networks behave is key to ensuring their functioning.

 

With current network theory, scientists can predict a few simple trends, such as which web pages are likely to get more hits over time. Mostly, current models “flatten” the system to a list of points (nodes) and connections between them (edges). But the features that bestow a network’s true cohesion and character – such as the nuanced predator-prey dynamics in an ecosystem, hierarchies in a social community, or critical hubs in a distribution system – have eluded quantification.

 

A new four-year, $2.9 million grant from the Defense Advanced Research Projects Agency is supporting SFI research that will, the researchers hope, propel their understanding of networks to the next level.


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Neuroscience and the Mystery of Music - Raymond Tallis » The Institute of Art and Ideas

Neuroscience and the Mystery of Music - Raymond Tallis » The Institute of Art and Ideas | Bounded Rationality and Beyond | Scoop.it
Can neuroscience reveal the purpose of art? Raymond Tallis explains why our love for music remains beyond science's grasp.

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Applied Chaos Theory: A Paradigm For Complexit Ali Bulent Cambel

Applied Chaos Theory: A Paradigm For Complexit Ali Bulent Cambel | Bounded Rationality and Beyond | Scoop.it

These are exciting times for mathematics, science, and technology. One of the fields that has been receiving great attention is Chaos Theory. Actually, this is not a single discipline, but a potpourri of nonlinear dynamics, nonequilibrium thermodynamics, information theory, and fractal geometry. In the less than two decades that Chaos Theory has become a major part of mathematics and physics, it has become evident that the old paradigm of determinism is insufficient if we are to understand - and perhaps solve - real life problems. Curiously, many of these problems are deterministic, but they are intertwined with randomness and chance. Thus the deterministic laws of physics coexist with the laws of probability. Consequently, uncertainty arises and unpredictability occurs, characteristic of complex systems. In its short lifetime Chaos Theory has already helped us gain insights into problems that in the past we found intractable. Examples of such problems include weather, turbulence, cardiological and neurophysiological episodes, economic restructuring, financial transactions, policy analysis, and decision making. Admittedly, we can as yet solve only relatively simple problems, but much progress has been made and we are now able to observe complex problems from new vantage points that provide us with numerous benefits. One such benefit is the universality of Chaos Theory in its applicability to different situations, which enables us to look at communal problems in an interdisciplinary manner, so that persons of different backgrounds can communicate with one another. Chaos Theory also enables us to reason in a holistic manner, rather than being constrained by simplistic reductionism.Finally, it is gratifying that the mathematics is not intimidating, and one can accomplish much with a personal computer or even a handheld calculator.

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Can neuroscience teach us anything about music?

Can neuroscience teach us anything about music? | Bounded Rationality and Beyond | Scoop.it

Apologies for my absence of late. I was recovering from a surprise dog bite to my right hand which made typing painful and slow. On the plus side I learned a valuable lesson: hands in the air around a dog! I shall be visually demonstrating absolute and total surrender to our canine companions for the near future.

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A Dynamic Systems Approach to the Development Of Cognition and Action (Cognitive Psychology Esther Thelen; Linda B. Smith

A Dynamic Systems Approach to the Development Of Cognition and Action (Cognitive Psychology Esther Thelen; Linda B. Smith | Bounded Rationality and Beyond | Scoop.it

A Dynamic Systems Approach to the Development of Cognition and Action presents a comprehensive and detailed theory of early human development based on the principles of dynamic systems theory. Beginning with their own research in motor, perceptual, and cognitive development, Thelen and Smith raise fundamental questions about prevailing assumptions in the field. They propose a new theory of the development of cognition and action, unifying recent advances in dynamic systems theory with current research in neuroscience and neural development. In particular, they show how by processes of exploration and selection, multimodal experiences form the bases for self-organizing perception-action categories.Thelen and Smith offer a radical alternative to current cognitive theory, both in their emphasis on dynamic representation and in their focus on processes of change. Among the first attempt to apply complexity theory to psychology, they suggest reinterpretations of several classic issues in early cognitive development.The book is divided into three sections. The first discusses the nature of developmental processes in general terms, the second covers dynamic principles in process and mechanism, and the third looks at how a dynamic theory can be applied to enduring puzzles of development.Cognitive Psychology series

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Stadium / home team effects in making field goals

Stadium / home team effects in making field goals | Bounded Rationality and Beyond | Scoop.it
We take on a reader question of whether the stadium / home team matters for making a field goal. We pulled up the data on every field goal since 2002 (over 10,000) of them and plotted the probabili...
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We take on a reader question of whether the stadium / home team matters for making a field goal. We pulled up the data on every field goal since 2002 (over 10,000) of them and plotted the probabili...

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Manipulating Reliance on Intuition Reduces Risk and Ambiguity Aversion

Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental evidence of causation running from reliance on intuition to risk and ambiguity preferences. We directly manipulate participants’ predilection to rely on intuition and find that enhancing reliance on intuition lowers the probability of being ambiguity averse by 30 percentage points and increases risk tolerance by about 30 percent in the experimental sub-population where we would a priori expect the manipulation to be successful (males)

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James B. Glattfelder: Who controls the world?

James Glattfelder studies complexity: how an interconnected system -- say, a swarm of birds -- is more than the sum of its parts. And complexity theory, it turns out, can reveal a lot about how the economy works.

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FastTFriend's curator insight, February 17, 2013 10:33 AM

James B. Glattfelder aims to give us a richer, data-driven understanding of the people and interactions that control our global economy. He does this not to push an ideology -- but with the hopes of making the world a better place.

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Global Agenda Council on New Economic Thinking

Global Agenda Council on New Economic Thinking | Bounded Rationality and Beyond | Scoop.it

Economics is not a complete science, although it is described with elegant formulas and closed models. The reality of an economy is complex, with dynamic feedback loops. Yet policy-makers often make decisions and design interventions as though in a deterministic vacuum. Capital markets are far from stable and predictable. The recent financial crises have revealed how little is understood about how markets and economic systems work.

New schools of economic thinking, such as neuroeconomics, bounded rationality, behavioural finance and experimental economics, challenge the fundamental assumptions of neoclassical economic approaches. They go beyond the standard policy tools typically employed to analyse, discover, understand, describe and forecast economic issues and systems. 

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Nassim Taleb and Daniel Kahneman discusses Antifragility at NYPL.mp4

Nassim Taleb and Daniel Kahneman discusses Antifragility at NYPL on Feb 5, 2013 www.pleasemishandle.com/videos/
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To pre-pay or not to pre-pay for gas when renting a car?

To pre-pay or not to pre-pay for gas when renting a car? | Bounded Rationality and Beyond | Scoop.it

One question we get asked a lot is whether it’s worth it to pre-pay for the tank of gas when renting a car.

At first, blush it seems like something you should never do. In the best case, you pay market rate for gas, and in the worst case, you pay for a tank of gas you never consume (what if your trip gets cancelled)?

At second blush, it can be worth the risk to avoid the hassle of fueling up just before returning the car. If your time and peace of mind are worth something, then maybe you should pre-pay when you are reasonably sure you’ll return it below a certain percentage full. But what percentage?

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You Can’t Put Old Wine in New Bottles: The Effect of Newcomers on Coordination in Groups

You Can’t Put Old Wine in New Bottles: The Effect of Newcomers on Coordination in Groups | Bounded Rationality and Beyond | Scoop.it

A common finding in social sciences is that member change hinders group functioning and performance. However, questions remain as to why member change negatively affects group performance and what are some ways to alleviate the negative effects of member change on performance? To answer these questions we conduct an experiment in which we investigate the effect of newcomers on a group’s ability to coordinate efficiently. Participants play a coordination game in a four-person group for the first part of the experiment, and then two members of the group are replaced with new participants, and the newly formed group plays the game for the second part of the experiment. Our results show that the arrival of newcomers decreases trust among group members and this decrease in trust negatively affects group performance. Knowing the performance history of the arriving newcomers mitigates the negative effect of their arrival, but only when newcomers also know the oldtimers performance history. Surprisingly, in groups that performed poorly prior to the newcomers’ arrival, the distrust generated by newcomers is mainly between oldtimers about each other rather than about the newcomers.


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Economics and the Brain: How People Really Make Decisions in Turbulent Times

Economics and the Brain: How People Really Make Decisions in Turbulent Times | Bounded Rationality and Beyond | Scoop.it
I

In a 2008 paper on neuroeconomics, economist George Loewenstein said: “Whereas psychologists tend to view humans as fallible and sometime even self-destructive, economists tend to view people as efficient maximisers of self-interest who make mistakes only when imperfectly informed about the consequences of their actions.”

This view of humans as completely rational – and the market as eminently efficient – is relatively recent. In 1922, in the Journal of Political Economy, Rexford G. Tugwell, said (to paraphrase) that a mind evolved to function best in “the exhilarations and the fatigues of the hunt, the primitive warfare and in the precarious life of nomadism”, had been strangely and quickly transported into a different milieu, without much time to modify the equipment of the old life.

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David Rose on the Moral Foundations of Economic Behavior | EconTalk | Library of Economics and Liberty

David Rose on the Moral Foundations of Economic Behavior | EconTalk | Library of Economics and Liberty | Bounded Rationality and Beyond | Scoop.it

David Rose of the University of Missouri, St. Louis and the author of The Moral Foundation of Economic Behavior talks with EconTalk host Russ Roberts about the book and the role morality plays in prosperity. Rose argues that morality plays a crucial role in prosperity and economic development. Knowing that the people you trade with have a principled aversion to exploiting opportunities for cheating in dealing with others allows economic actors to trust one another. That in turn allows for the widespread specialization and interaction through markets with strangers that creates prosperity. In this conversation, Rose explores the nature of the principles that work best to engender trust. The conversation closes with a discussion of the current trend in morality in America and the implications for trust and prosperity.

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Administrative Behavior: A Study Of Decision-Making Processes In Administrative Organisation Herbert A. Simon

Administrative Behavior: A Study Of Decision-Making Processes In Administrative Organisation Herbert A. Simon | Bounded Rationality and Beyond | Scoop.it

 this fourth edition of his ground-breaking work, Herbert A. Simon applies his pioneering theory of human choice and administrative decision-making to concrete organizational problems. To commemorate the fiftieth anniversary of the book's original publication, Professor Simon enhances his timeless observations on the human decision-making process with commentaries examining new facets of organizational behavior. Investigating the impact of changing social values and modem technology on the operation of organizations, the new ideas featured in this revised edition update a book that has become a worldwide classic.Named by Public Administration Review as 'Book of the Half Century,' Administrative Behavior is considered one of the most influential books on social science thinking, and was referred to by the Nobel Committee as 'epoch-making.'Written for managers and other professionals who wish to understand the decision-making processes at the heart of organization and management, it is also essential reading for students in business and management, economics, sociology, psychology computer science, government, and law.

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A Theory Of Cognitive Dissonanc Leon Festinger

A Theory Of Cognitive Dissonanc Leon Festinger | Bounded Rationality and Beyond | Scoop.it

Festinger's theory of cognitive dissonance can account for the psychological consequences of disconfirmed expectations. One of the first published cases of dissonance was reported in the book, When Prophecy Fails (Festinger et al. 1956). Festinger and his associates read an interesting item in their local newspaper headlined 'Prophecy from planet clarion call to city: flee that flood.' Festinger and his colleagues saw this as a case that would lead to the arousal of dissonance when the prophecy failed. They infiltrated the group and reported the results, confirming their expectations. Cognitive dissonance is a motivational state caused because of a conflict between competing goals, beliefs, values, ideas, or desires. The tension can vary due to the importance of the issue in the person's life, and the change in inconsistency between competing beliefs/ideas, and desires/needs. The tension generates a 'drive state' in which the individual feels a need to settle the dissonance. In order to diminish the tension, the person must make a decision to either change their behavior or their beliefs in order to create consistency between the variables. According to cognitive dissonance theory, there is a tendency for individuals to seek consistency among their cognitions (i.e., beliefs, opinions). When there is an inconsistency between attitudes or behaviors (dissonance), something must change to eliminate the dissonance. In the case of a discrepancy between attitudes and behavior, it is most likely that the attitude will change to accommodate the behavior. Two factors affect the strength of the dissonance: the number of dissonant beliefs, and the importance attached to each belief. There are three ways to eliminate dissonance: (1) reduce the importance of the dissonant beliefs, (2) add more consonant beliefs that outweigh the dissonant beliefs, or (3) change the dissonant beliefs so that they are no longer inconsistent. Dissonance occurs most often in situations where an individual must choose between two incompatible beliefs or actions. The greatest dissonance is created when the two alternatives are equally attractive. Furthermore, attitude change is more likely in the direction of less incentive since this results in lower dissonance. In this respect, dissonance theory is contradictory to most behavioral theories which would predict greater attitude change with increased incentive (i.e., reinforcement).

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A Cognitive Theory Of Metapho Earl R. Mac Cormac

A Cognitive Theory Of Metapho Earl R. Mac Cormac | Bounded Rationality and Beyond | Scoop.it

In this book, Earl Mac Cormac presents an original and unified cognitive theory of metaphor using philosophical arguments which draw upon evidence from psychological experiments and theories. He notes that implications of this theory for meaning and truth with specific attention to metaphor as a speech act, the iconic meaning of metaphor, and the development of a four-valued system of truth. Numerous examples of metaphor from poetry and science are presented and analyzed to support Mac Cormac's theory.A Cognitive Theory of Metaphor takes up three levels of explanation--metaphor as expressed in surface language, the semantics of metaphor, and metaphor as a cogitive process--and unifies these by interpreting metaphor as an evolutionary knowledge process in which metaphors mediate between minds and culture. Mac Cormac considers, and rejects, the radical theory that all use of language is metaphorical; however, this argument also recognizes that the theory of metaphor may itself be metaphorical.The book first considers the computational metaphor often adopted by cognitive psychology as an example of metaphor requiring analysis. In contrast to three well-known philosophical theories of metaphor--the tension theory, the controversion theory, and the grammatical deviance theory--it develops a semantical anomaly theory of metaphor based on a quasi-mathematical hierarchy of words. In developing the theory, Mac Cormac makes much-needed connections between theories of metaphor and more orthodox analytic philosophy of meaning, including discussions of speech acts and the logic of fuzzy sets. This semantical theory of explanation is then shown to be compatible with contemporary psychological theories of memory.

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Emre Erdogan's curator insight, February 16, 2013 12:18 AM

Metaphors matter...