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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Are groups 'less behavioral'? The case of anchoring

Abstract: Economic small group research points to groups as more rational decision-makers in numerous economic situations. However, no attempts have been made to investigate whether groups are affected similarly by behavioral biases that are pervasive for individuals. If groups were also able to more effectively avoid these biases, the relevance of biases in actual economic contexts dominated by group decision-making might be questioned. We consider the case of anchoring as a prime example of a well-established, robust bias. Individual and group biasedness in three economically relevant domains are compared: factual knowledge, probability estimates and price estimates. In contrast to previous anchoring studies, we find groups to successfully reduce, albeit not eliminate, anchoring in factual knowledge tasks. For the other domains, groups and individuals are equally biased by external anchors. We thus suggest that group cooperation reduces biases prevalent on the individual level for predominantly intellective tasks, yet fails to improve decision-making when judgmental aspects are involved. --

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Method, Theory, and Multi Agent Artificial Intelligence: Creating computer models of complex social interaction

Method, Theory, and Multi Agent Artificial Intelligence: Creating computer models of complex social interaction | Bounded Rationality and Beyond | Scoop.it
ABSTRACTThe construction of computer models is becoming an increasingly useful and popular way of testing theories in the cognitive sciences. This paper will presenta brief overview of the methods available for constructing and testing computermodels of social phenomena such as religious beliefs and behaviors. It will fo-cus on the importance of theoretical continuity and data replication in computer modelling while negotiating the relationship between specicity and ecological validity when models are extended into novel contexts. This paper will ar- gue that computer modeling is an important supplement to the methodological toolbox of cognitive scientists interested in human social phenomena. However,this is only the case if developers pay close attention to research methods andtheories and if the method of a model’s development is appropriate for the target phenomenon (Sun, 2006). It concludes that multi-agent AI models are the mostappropriate computational tool for the study of complex social phenomena.
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BBC Radio 4 - Start the Week, Decision-making with Daniel Kahneman and Michael Ignatieff

BBC Radio 4 - Start the Week, Decision-making with Daniel Kahneman and Michael Ignatieff | Bounded Rationality and Beyond | Scoop.it
Tom Sutcliffe discusses how we make decisions with the Nobel prize-winning psychologist Daniel Kahneman. Moral choices in politics can be a complicated business, according to the academic and former politician Michael Ignatieff, who explores whether the age of international intervention is over. Doctors work under the oath 'do no harm', but the neurosurgeon Henry Marsh says the decision whether to operate on a brain is rarely that simple. High emotion can cloud your judgement and the writer Lisa Appignanesi looks back at sensational crimes of passion to ask how far the perpetrators were responsible for their actions.
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La Matteonomics sa molto di neuroeconomia. Parola di prof.

La Matteonomics sa molto di neuroeconomia. Parola di prof. | Bounded Rationality and Beyond | Scoop.it
Non sarebbe corretto commentare a caldo il vasto numero di misure presentate al termine del Consiglio dei Ministri (CdM) del …
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Selectively altering belief formation in the human brain

Selectively altering belief formation in the human brain-

 

Humans form beliefs asymmetrically; we tend to discount bad news but embrace good news. This reduced impact of unfavorable information on belief updating may have important societal implications, including the generation of financial market bubbles, ill preparedness in the face of natural disasters, and overly aggressive medical decisions. Here, we selectively improved people’s tendency to incorporate bad news into their beliefs by disrupting the function of the left (but not right) inferior frontal gyrus using transcranial magnetic stimulation, thereby eliminating the engrained “good news/bad news effect.” Our results provide an instance of how selective disruption of regional human brain function paradoxically enhances the ability to incorporate unfavorable information into beliefs of vulnerability.

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Eli Levine's curator insight, March 20, 2014 4:01 PM

Intuitive enough, and based on experiences common to us all, whether we'd like to think of it in these terms or not.

 

Denying it simply proves the point more.

 

Think about it.

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The social motivation hypothesis for prosocial behavior (with Marion Godman and Mikko Salmela)

The social motivation hypothesis for prosocial behavior (with Marion Godman and Mikko Salmela) | Bounded Rationality and Beyond | Scoop.it
The social motivation hypothesis for prosocial behavior (with Marion Godman and Mikko Salmela)
Abstract  Existing economic models of prosociality have been rather silent interms of  proximate  psychological mechanisms. We nevertheless identifythe psychologically most informed accounts and offer a criticaldiscussion of their hypotheses for the proximate psychologicalexplanations. Based on convergent evidence from several fields ofresearch we argue that there nevertheless is a more plausiblealternative proximate account available: the social motivationhypothesis. The hypothesis represents a more basic explanation of theappeal of prosocial behavior, which is in terms of anticipated socialrewards. We also argue in favour of our own social motivation hypothesis over Robert Sugden’s fellow -feeling account (due originallyto Adam Smith). We suggest that the social motivation not only standsas a proximate account in its own right; it also provides a plausiblescaffold for other more sophisticated motivations (e.g. fellow-feelings).We conclude by discussing some possible implications the socialmotivation hypothesis has on existing modelling practice. 
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Mark Waser's curator insight, March 17, 2014 8:27 AM

Compare and contrast with http://www.amazon.com/Cultivating-Conscience-Good-Laws-People-ebook/dp/B0046A8S8G/

Eli Levine's curator insight, March 17, 2014 3:11 PM

Humans are social animals.  We rely on others for the sake of our survival and well being, and would not have done as well if we had not had these pro-social instincts.


I think we're in the middle of another evolutionary transition where our brains are what are evolving most rapidly.  Anti-social or delusional tendencies are going to be punished, either by society or the environment, while pro-social and well grounded tendencies are going to end up being rewarded.  We cannot continue to survive with the logic of negative leadership for very long.  At least the so called "leaders" who buy into the need for force and deception to govern a people aren't going to last very long.

 

At least, I hypothesize they won't, owing to the nature of nature and the nature of humans in societies.

 

Think about it.

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Mathematical Definition, Mapping, and Detection of (Anti)Fragility by Nassim Nicholas Taleb, Raphael Douady :: SSRN

Mathematical Definition, Mapping, and Detection of (Anti)Fragility by Nassim Nicholas Taleb, Raphael Douady :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
We provide a mathematical definition of fragility and antifragility as negative or positive sensitivity to a semi-measure of dispersion and volatility (a variant of negative or positive “vega”) and examine the link to nonlinear effects. We integrate model error (and biases) into the fragile or antifragile context. Unlike risk, which is linked to psychological notions such as subjective preferences (hence cannot apply to a coffee cup) we offer a measure that is universal and concerns any object that has a probability distribution (whether such distribution is known or, critically, unknown).

We propose a detection of fragility, robustness, and antifragility using a single “fast-and-frugal”, model-free, probability free heuristic that also picks up exposure to model error. The heuristic lends itself to immediate implementation, and uncovers hidden risks related to company size, forecasting problems, and bank tail exposures (it explains the forecasting biases). While simple to implement, it outperforms stress testing and other such methods such as Value-at-Risk. 

 

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Segmenti di funzioni del cervello per l’educazione. Verso una Neurodidattica Enattiva

Segmenti di funzioni del cervello per l’educazione. Verso una Neurodidattica Enattiva | Bounded Rationality and Beyond | Scoop.it
Si è più volte detto della necessità che la stimolazione didattica sia organizzata in scansioni che prevedano ad un certo punto del loro dispiegarsi una sorta di picco emozionale che conferisca all’unità didattica assunta potere formativo e non solo informativo (Aprile 2012).  

Ma formativo di che? E come può realizzarsi un tale esito? Ci si riferisce sia agli aspetti tecnico culturali specifici dell’argomento, sia alla comprensione più profonda del suo nucleo centrale o dei suoi nuclei policentrici; e a anche alla possibilità di una educazione ad una vita emozionale equilibrata. Questo è il limitato oggetto del presente scritto. Si devono intanto dare per intesi i sentieri avviati da Damasio (2000, 2012) su Emozione  e Coscienza, ma anche alle propaggini sul Sé e la Mente; da Rossi (2011) sulla Didattica Enattiva e da Rivoltella (2012) sulla Neurodidattica che costituiscono lo sfondo teorico di questi segmenti. Il recente libro di Davidson ne costituisce invece l’ossatura centrale.
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Italy Be-Have: Why Italy should establish a Nudge Unit

Italy Be-Have: Why Italy should establish a Nudge Unit | Bounded Rationality and Beyond | Scoop.it
One of the strategies to free Italy from its legendary bureaucracy may lie in a new approach towards policy-making says Alberto Alemanno in an Op-Ed published in Il Sole 24 Ore. He proposes the Italian government to establish an Italian Nudge Unit called 'Italy Be-Have'. 

Recent times have witnessed a rising interest by regulators, administrative agencies as well as public administrations towards a better understanding of human behavior based on the results that decades of experimental research have produced. Behavioral research, by showing that individuals deviate in predictable ways from neoclassical assumptions of rationality, may have implications for regulatory policy and is potentially set to revolutionize the way in which policies are formulated and implemented. Thus, placing an emoticon (sad face) or a set of information about average consumption on a prohibitive energy bill has the potential to nudge consumers towards less energy consumption. Rearranging the display of food makes it more likely that the healthy option is chosen. “Opt-out” mechanisms for deeming consent for automatic registration processes increases considerably the number of users registered in a certain program (e.g. organ donation or tax schemes). In a wide-range of policy fields such as energy, health, financial services, transport, experimental findings in behavioural research can be used by the Administrative and Regulatory State in connection with the traditional regulatory tools to produce behavioural change. As a result, policy makers may design effective, low-cost, choice-preserving approaches to societal problems.

 
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(Dis)Honesty - Dan Ariely A Documentary Feature Film

The truth is, we all lie - and by "we," we mean everyone!

THE PROJECT:

Our film “(Dis)Honesty – The Truth About Lies” examines the human tendency to be dishonest. From rampant plagiarism in our schools, to drug use in sports, to marital infidelity, to financial schemes destabilizing the global economy, dishonesty seems to be a regular part of the world we live in and the news we read. But the truth is that beneath the surface of the scandalous headlines, cheating is not just happening on a newsworthy scale, it’s happening in small ways everywhere. 

When it comes to dishonesty, rational economic theory suggests that we consider the costs and benefits of our decision: i.e.  what we can gain, the probability of getting caught, and the consequences we will face if caught. However, behavioral economics tells a different story and experiments show that cheating behavior falls within a grey zone where we can cheat and still feel good about ourselves — otherwise known as "the fudge factor."  And while some influences can shrink the fudge factor to get us to behave more honestly, others expand the grey zone and help us rationalize dishonest behavior.

The film looks at dishonesty through multiple angles with personal tales of dishonesty ranging from the most trivial white lies to devastating lies that destroy lives. These stories are interwoven with insights from Dan Ariely based on years of behavioral research.  The film will also include expert opinions by leaders in fields such as neuroscience, the arts and law, and archival footage that provides a deeper 360 cultural and historical context for dishonesty. The film presents the complicated ethical landscape we all navigate.

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Current Biology - Dissociation between Musical and Monetary Reward Responses in Specific Musical Anhedonia

Music has been present in all human cultures since prehistory [1,2], although it is not associated with any apparent biological advantages (such as food, sex, etc.) or utility value (such as money). Nevertheless, music is ranked among the highest sources of pleasure [3], and its important role in our society and culture has led to the assumption that the ability of music to induce pleasure is universal. However, this assumption has never been empirically tested. In the present report, we identified a group of healthy individuals without depression or generalized anhedonia who showed reduced behavioral pleasure ratings and no autonomic responses to pleasurable music, despite having normal musical perception capacities. These persons showed preserved behavioral and physiological responses to monetary reward, indicating that the low sensitivity to music was not due to a global hypofunction of the reward network. These results point to the existence of specific musical anhedonia and suggest that there may be individual differences in access to the reward system.

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Why Preschoolers Can Outsmart College Students — PsyBlog

Why Preschoolers Can Outsmart College Students — PsyBlog | Bounded Rationality and Beyond | Scoop.it

Simple test of logic produces surprising win for 4 and 5-year-olds over college students.

Preschoolers can outsmart college students because they are less biased and more flexible than adults, a new study finds.

The conclusion comes from research published in the journal, Cognition, which put 170 college undergrads up against 106 four and five-year-olds in a test of learning and reasoning (Lucas et al., 2014).

 
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Happiness is Contagious and Powerful on Social Media — PsyBlog

Happiness is Contagious and Powerful on Social Media — PsyBlog | Bounded Rationality and Beyond | Scoop.it
Study of over one billion status updates finds that positive emotions are more contagious than negative. 

Emotions expressed online — both positive and negative — are contagious, concludes a new study from the University of California, San Diego and Yale University (Coviello et al., 2014).

One of the largest ever studies of Facebook examined the emotional content of one billion posts over two years.

Software was used to analyse the emotional content of each post.

Then they needed something random which would affect people’s emotions as a group and could be tracked in their status updates — this would create a kind of experiment.

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Camerer 3 Cheers for Loss Aversion

Three cheers—psychological, theoretical, empirical— for loss-aversion Colin Camerer Caltech camerer@hss.caltech.edu Abstract This note emphasizes the special role of prospect theory in drawing psychophysical considerations into theories of decision making under risk. One such consideration is the dependence of outcome value on a reference point, and the increased sensitivity of loss relative to gain (“loss-aversion”). Loss-aversion can explain the St. Petersburg Paradox without requiring concave
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Mysterious Brain Region That is Vital to How You Decide — PsyBlog

Mysterious Brain Region That is Vital to How You Decide — PsyBlog | Bounded Rationality and Beyond | Scoop.it

Whether you’re choosing between job offers or deciding which car or house to buy, this region is probably involved. One of the smallest parts of the brain has a vital role in decision-making, a new study suggests. The area of the brain, the lateral habenula, near the centre, has previously been associated with avoidant behaviour and depression, but is now being looked at again.

.

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The Good, the Bad, and the Just: Justice Sensitivity Predicts Neural Response during Moral Evaluation of Actions Performed by Others

The Good, the Bad, and the Just: Justice Sensitivity Predicts Neural Response during Moral Evaluation of Actions Performed by Others | Bounded Rationality and Beyond | Scoop.it

The Good, the Bad, and the Just: Justice Sensitivity Predicts Neural Response during Moral Evaluation of Actions Performed by Others-

Morality is a fundamental component of human cultures and has been defined as prescriptive norms regarding how people should treat one another, including concepts such as justice, fairness, and rights. Using fMRI, the current study examined the extent to which dispositions in justice sensitivity (i.e., how individuals reactto experience sofin justice and unfairness) predict behavioral ratings of praise and blame and how they modulate the online neural response and functional connectivity when participants evaluate morally laden (good and bad) everyday actions. Justice sensitivity did not impact theneuro hemodynamic response in the action observation network but instead influenced higher-order computational nodes in the right tempo roparietal junction (rTPJ), right dorsolateral and dorsomedial prefrontal cortex (rdlPFC, dmPFC) that process mental states understanding and maintain goal representations. Activity in these regions predicted praise and blame ratings.Further, the hemodynamic response in rTPJ showed a differentiation between good and bad actions 2 s before the response in rdlPFC. Evaluation of good actions was specifically associated with enhanced activity in dorsal striatum and increased the functional coup ling between the rTPJ and the anterior cingulate cortex. Together, this study provides important knowledge in how individual differences in justice sensitivity impact neural computations that support psychological processes involved in moral judgment and mental state reasoning.

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Update 5: HAPPY ST. PATRICK'S DAY - in honor of all trickster Leprechauns, a new reward and message from Dan! · DisHonesty - A Documentary Feature Film

Update 5: HAPPY ST. PATRICK'S DAY - in honor of all trickster Leprechauns, a new reward and message from Dan! · DisHonesty - A Documentary Feature Film | Bounded Rationality and Beyond | Scoop.it
In the spirit of St. Patty's Day, you can now have your own Pot O' Gold with deliciously (Dis)Honest Bitecoins! We guarantee they are good for your mental health. Thanks for the amazing support during our first week - help us spread the word to anyone you think has ever lied!
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The Risk Externalities of Too Big to Fail by Nassim Nicholas Taleb, Charles S. Tapiero :: SSRN

The Risk Externalities of Too Big to Fail by Nassim Nicholas Taleb, Charles S. Tapiero :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
This paper examines the risk externalities stemming from the size of institutions. Assuming (conservatively) that a firm risk exposure is limited to its capital while its external (and random) losses are unbounded we establish a condition for a firm to be too big to fail. In particular, expected risk externalities’ losses conditions for positive first and second derivatives with respect to the firm capital are derived. Examples and analytical results are obtained based on firms’ random effects on their external losses (their risk externalities) and policy implications are drawn that assess both the effects of “too big to fail firms” and their regulation.

 

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Organizational Coordination and Costly Communication with Boundedly Rational Agents

Abstract: How does costly communication affect organizational coordination? This paper develops a model of costly communication based on the weakest-link game and boundedly rational agents. Solving for the stochastically stable states, we find that communication increases the possibilities for efficient coordination compared to a setting where agents cannot communicate. But as agents face a trade-off between lowering the strategic uncertainty for the group and the costs of communication, the least efficient state is still the unique stochastically stable one for many parameter values. Simulations show that this is not just a long run phenomena, the stochastically stable state is the most frequent outcome also in the short run. Making communication mandatory induces efficient coordination, whereas letting a team leader handle communication increases efficiency when the leader expects others to follow and has enough credibility. The results are broadly consistent with recent experimental evidence of communication in weakest-link games.

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Nudging Legally - On the Checks and Balances of Behavioural Regulation by Alberto Alemanno, Alessandro Spina :: SSRN

Nudging Legally - On the Checks and Balances of Behavioural Regulation by Alberto Alemanno, Alessandro Spina :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
As behavioural sciences are unearthing the complex cognitive framework in which people make decisions, policymakers seem increasingly ready to design behaviourally-informed regulations to induce behaviour change in the interests of the individual and society. After discussing what behavioural sciences have to offer to administrative law, this paper explores the extent to which administrative law may accommodate their findings into the regulatory process. After presenting the main regulatory tools capable of operationalizing behavioural insights, it builds a case for integrating them into public policymaking. In particular, this paper examines the challenges and frictions of behavioural regulation with regard both to established features of administrative law, such as the principle of legality, impartiality and judicial oversight and more innovative control mechanisms such as the use of randomized control trials to test new public policies. This analysis suggests the need to develop a legal framework capable of ensuring that behavioural considerations may inform the regulatory process while at the same time guaranteeing citizens' constitutional rights and freedoms vis-à-vis the Regulatory State. 

 

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Eli Levine's curator insight, March 12, 2014 3:37 PM

You need regulation that works and doesn't appear as regulation to the individual and lightens the bureaucracy and pena

 

Amazing that this is coming out of conservative governments who don't ideologically believe in regulation (at least, none that really benefits human society).  Hypocritical and, perhaps, ineffective at its core.

 

Imagine if the progressives used these insights to actually work on making our economy more stable, our society (not business leaders) more prosperous and our environment more inhabitable.

 

Think about it.

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The Simple Rules of Social Contagion

The Simple Rules of Social Contagion | Bounded Rationality and Beyond | Scoop.it
It is commonly believed that information spreads between individuals like a pathogen, with each exposure by an informed friend potentially resulting in a naive individual becoming infected. However, empirical studies of social media suggest that individual response to repeated exposure to information is far more complex. As a proxy for intervention experiments, we compare user responses to multiple exposures on two different social media sites, Twitter and Digg. We show that the position of exposing messages on the user-interface strongly affects social contagion. Accounting for this visibility significantly simplifies the dynamics of social contagion. The likelihood an individual will spread information increases monotonically with exposure, while explicit feedback about how many friends have previously spread it increases the likelihood of a response. We provide a framework for unifying information visibility, divided attention, and explicit social feedback to predict the temporal dynamics of user behavior.

Via Claudia Mihai
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Arjen ten Have's curator insight, March 12, 2014 8:21 AM

These are things we need to consider when we think about society.

Eli Levine's curator insight, March 12, 2014 2:53 PM

I've come to the conclusion that I am not going to spread like wildfire throughout the whole of the population.  My best bank is target who reads what I've got to write, so as to increase the chances that I'm able to do what I'm drawn to do.

 

Who knows if this will work.

 

But I'd rather try than do nothing; take the chance of failure rather than the guarantee of it.

 

Think about it.

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Upside of Irrationality Chapter 0: Introduction - YouTube

In this last video of the Upside of Irrationality video series, 

Dan discusses Upside of Irrationality Chapter 0: Introduction

 
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Neurobiological mechanisms of anhedonia

Neurobiological mechanisms of anhedonia | Bounded Rationality and Beyond | Scoop.it

Anhedonia refers to the reduced ability to experience pleasure, and has been studied in different neuropsychiatrie disorders. Anhedonia is nevertheless considered as a core feature of major depressive disorder, according to DSM-IV criteria for major depression and the definition of melancholic subtype, and regarding its capacity to predict antidepressant response. Behavioral, electrophysiological, hemodynamic, and interview-based measures and selfreports have been used to assess anhedonia, but the most interesting findings concern neuropharmacological and neuroanatomical studies. The analyses of anhedonic nonclinical subjects, nonanhedonic depressed patients, and depressed patients with various levels of anhedonia seem to favor the hypothesis that the severity of anhedonia is associated with a deficit of activity of the ventral striatum (including the nucleus accumbens) and an excess of activity of ventral region of the prefrontal cortex (including the ventromedial prefrontal cortex and the orbitofrontal cortex), with a pivotal, but not exclusive, role of dopamine.

 
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Behavioral Economics - Sendhil Mullainathan, Richard H. Thaler

Behavioral Economics is the combination of psychology and economics that investigates what happens in markets in which some of the agents display human limitations and complications. We begin with a preliminary question about relevance. Does some combination of market forces, learning and evolution render these human qualities irrelevant? No. Because of limits of arbitrage less than perfect agents survive and influence market outcomes. We then discuss three important ways in which humans deviate from the standard economic model. Bounded rationality reflects the limited cognitive abilities that constrain human problem solving. Bounded willpower captures the fact that people sometimes make choices that are not in their long-run interest. Bounded self-interest incorporates the comforting fact that humans are often willing to sacrifice their own interests to help others. We then illustrate how these concepts can be applied in two settings: finance and savings. Financial markets have greater arbitrage opportunities than other markets, so behavioral factors might be thought to be less important here, but we show that even here the limits of arbitrage create anomalies that the psychology of decision making helps explain. Since saving for retirement requires both complex calculations and willpower, behavioral factors are essential elements of any complete descriptive theory.

 
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