Bounded Rationality and Beyond
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Bounded Rationality and Beyond
News on the effects of bounded rationality in economics and business, relationships and politics
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Risk off

Risk off | Bounded Rationality and Beyond | Scoop.it

RISK has always had a bit of an image problem. It is associated in the popular mind with gamblers, skydivers and, more recently, the overpaid bankers who crippled the global economy. Yet long-term economic growth would be impossible without people willing to wager all they have by starting a business, expanding an existing one or trying to invent a better mousetrap. Such risk-taking has been disturbingly scarce in America of late: the number of self-employed workers, job-creation at start-ups and the sums invested in businesses have been low.

Though changing appetites for risk are central to booms and busts, economists have found it hard to explain their determinants. Instead, they tend to cite John Maynard Keynes’s catchy but uncrunchy talk of “animal spirits”. Recent advances in behavioural economics, however, are changing that.

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Don't Give Wrong Theories Funerals. Just Stop Treating Them as True.

Don't Give Wrong Theories Funerals. Just Stop Treating Them as True. | Bounded Rationality and Beyond | Scoop.it
Richard H. Thaler 

I have a problem with this question, so I will answer a somewhat different one. I suppose the intent of the question is to point to some ideas have been definitively shown to be either wrong or unhelpful, and so should be dropped from our scientific lexicon. In economics there are certainly many theories, hypotheses and models that are badly flawed descriptions of the behavior of economic agents, so one might think that I would have many nominations for ideas that should be given funerals. But I don't. That is because most of these theories, while demonstrably poor descriptions of reality, are extremely useful as theoretical baselines. As such, it would be a mistake to declare these theories dead.

Before getting to a couple specific examples, it is important to stress that in economics theories usually serve dual purposes. The first purpose is "normative" in the sense that it defines what a rational agentshould do. The second purpose of the theory is "descriptive"; that is, it is meant to be an accurate description of how firms actually behave. Economists use the same theory for both purposes, and this leads to problems.

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Dave Pizarro: La strana politica del disgusto

Che cosa ha a che fare il disgusto con il voto politico? 

 Attrezzato con indagini ed esperimenti, lo psicologo David Pizarro dimostra la correlazione tra la sensibilità a disgusto -- foto di feci, un odore sgradevole -- e il conservatorismo morale e politico.

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Behavioural Economics Events

Behavioural Economics Events | Bounded Rationality and Beyond | Scoop.it
We aim to provide a comprehensive list of events in behavioural science, behavioural economics and judgement and decision making.

 

The site was created by Joe Gladstone and is jointly run with Jon Jachimowicz, both research students in behavioural economics at the University of Cambridge. We welcome your event submissions. They will be moderated and appear on the site within 12 hours. Please include as much information as possible when submitting events, and if you encounter any problems, email Joe Gladstone at JJGladstone88@gmail.com 
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What Neuroscience Can Teach Us About Making a Deal With Iran

What Neuroscience Can Teach Us About Making a Deal With Iran | Bounded Rationality and Beyond | Scoop.it
Wondering whether the historic nuclear talks with Iran will succeed or fail? Study the brain.  

While only 14 nations, including Iran, enrich uranium (e.g. “what everyone else is doing”), Zarif’s message raises a question at the heart of ongoing talks to implement a final nuclear settlement with Tehran: Why has the Iranian government subjected its population to the most onerous sanctions regime in contemporary history in order to do this? Indeed, it’s estimated that Iran’s antiquated nuclear program needs one year to enrich as much uranium as Europe’s top facility produces in five hours. 


To many, the answer is obvious: Iran is seeking a nuclear weapons capability (which it has arguably already attained), if not nuclear weapons. Yet the numerous frameworks used to explain Iranian motivations—including geopolitics, ideology, nationalism, domestic politics, and threat perception—lead analysts to different conclusions. Does Iran want nuclear weapons to dominate the Middle East, or does it simply want the option to defend itself from hostile opponents both near and far? While there’s no single explanation for Tehran’s actions, if there is a common thread that connects these frameworks and may help illuminate Iranian thinking, it is the brain.
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These Scientists Studied Why Internet Stories Go Viral. You Won't Believe What They Found

These Scientists Studied Why Internet Stories Go Viral. You Won't Believe What They Found | Bounded Rationality and Beyond | Scoop.it
Science confirms what Buzzfeed and Upworthy already know: In the hierarchy of digital contagion content that evokes powerful emotions floats..Then again, many factors influence whether or not something goes viral. Interesting content is a must, and catching the eye of a major Twitter personality can't hurt. A heavy marketing push can also boost a video's exposure; (in fact, one of Neetzan Zimmerman's biggest fears, according to the Journal, is that advertisers will co-opt viral news). And, of course, there's the difficulty in evoking strong feelings in the first place. It's one thing to understand the emotions that compel a person to click. It's another thing entirely to produce them.
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Experiment zum Anker-Effekt

Experiment zum Anker-Effekt | Bounded Rationality and Beyond | Scoop.it
Heute möchte ich ein weiteres kleines Experiment vorstellen, das ich selbst mit einer kleinen Gruppe von 10 Personen im Jahr 2011 durchgeführt habe, um den Anker-Effekt (auch: Verankerungsheuristik) zu testen.
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Sharing fast and slow: The psychological connection between how we think and how we spread news on social media

Sharing fast and slow: The psychological connection between how we think and how we spread news on social media | Bounded Rationality and Beyond | Scoop.it

What drives sharing? It's a mix of attention, emotion, and reaction. Here's hard data on which news stories took off and which didn't on social. 

Related to System 1, psychologists have discovered many interesting phenomena, such as priming effects. Priming effects is an overarching concept and discusses people’s behavior under nearly unconsciously influence. For instance, ask two groups of people to complete SO_P; before this task, one group saw EAT and the other saw WASH. The EAT group would more likely finish it as SOUP and the other SOAP. Here, EAT primes SOUP and WASH primes SOAP.

Another experiment relevant to unconscious influence was conducted at the University of Newcastle (Bateson et al., 2006). An honesty box was placed in office to collect payment for tea and coffee. Different posters were displayed in turn above the price list. The posters had no text but featured two themes, eyes or flowers. The results (Figure 5) showed that during the “eyed” weeks, more money was paid than the floral weeks. This experiment nicely demonstrated that “priming phenomena arise in System 1 and you have no conscious access to them” (Kahneman, 2011, p. 57). f we apply this concept to social media, what could we find? I started exploring evidence with a small task. The research question is: Could questions raised on social media prime people’s behavior of answering them? That’s to say, would a question mark generate more comments on a post?

 
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The Robustness of Anchoring Effects on Market Good Valuations by SangSuk Yoon, Nathan M. Fong, Angelika Dimoka :: SSRN

The Robustness of Anchoring Effects on Market Good Valuations by SangSuk Yoon, Nathan M. Fong, Angelika Dimoka :: SSRN | Bounded Rationality and Beyond | Scoop.it
Abstract:      
Ariely, Loewenstein, and Prelec (2003) showed that people’s judgments of a product’s value are strongly and systematically influenced by considering numbers (or “anchors”) which should be irrelevant to their valuations. However, subsequent studies showed inconsistent results while using different experimental protocols. To bridge the gap between conflicting prior studies, we replicated the anchoring effect in product valuations while also varying the experimental protocol. We examined whether the type of anchoring number (Social Security number vs. random number), recruiting method (classroom vs. email recruiting), or cover story (in-class market research demonstration vs. participation in research experiment) contributed to the divergent results. Our results replicated the anchoring effect at economically significant magnitudes (near the middle of the range for previous studies), but we did not find evidence that the procedural differences can account for the conflicting prior results.
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:) The Quiz Daniel Kahneman Wants You to Fail

In the December 2011 issue of Vanity Fair, Michael Lewis profiles Nobel Prize–winning psychologist Daniel Kahneman, who pioneered research into “heuristics,” or the shortcuts humans use when making decisions.Below, take our quiz to see how your own mind works.

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Questioning the nature of research | Features | Research

Research is undeniably important, says Rory Sutherland, but it needs to be “significantly improved” in light of what neuromarketing and behavioural economics teaches us. 

Ogilvy Group UK vice chairman Rory Sutherland is a leading proponent of applying behavioural economics theory to the practice of marketing and advertising. He’s interested in what people actually do, and how they actually make decisions about the products they buy, rather than what they say they do.

For him, survey research is an inherently unreliable means of getting to the truth of consumer behaviour and emotions. It’s still “better than ignorance in many cases”, but he says questions must be asked about how research can be “significantly improved” given all we now know about the human brain, thanks to behavioural economics and neuromarketing.

 

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Behavioural Economics vs. Customer Centricitiy - Deloitte Customer UK

Behavioural Economics vs. Customer Centricitiy - Deloitte Customer UK | Bounded Rationality and Beyond | Scoop.it

‘Behavioural economics vs data analytics’, introduced the topic of behavioural economics and explained how it differs from analytics. Both allow you a greater understanding of the motivations and inclinations of a customer, but each relies on a different approach, necessitated by the transition from interpreting content towards interpreting context. A little knowledge, however, can be considered a dangerous thing.

Suppose you sell a product which expires after a particular term and discover that asking customers whether they wish to “opt in?” or “opt out?” of an auto-renewal mechanism produces significantly different take-up rates. Which of the two questions would you decide to ask? It’s certainly not as easy as saying “whichever produces the most sales”. By changing the question, are you actively playing on behavioural biases of certain customers, at the expense of what might be termed “a free and fair choice”? Are you creating a sales tool which works only because we understand the mistakes a customer is likely to make?

 
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Quirks in Time Perception

Quirks in Time Perception | Bounded Rationality and Beyond | Scoop.it
Predictable quirks in how people perceive the passage of time.

There's still plenty we don't understand about how humans perceive time, but one fact is clear: we don't perceive time the way clocks portray time, one second at a time, with each second passing just as quickly as its earlier and later counterparts. Indeed, clocks prolong the pain of an already too lengthy experience. Patrick Smith, an erstwhile pilot and author at Salon.com, described just this pain when he remembered the experience of traveling from New York to Johannesburg. Smith remembered that the flight lasted exactly 14 hours and 46 minutes, because he sat directly behind a small digital timer that registered each minute as the plane slowly crossed the Atlantic.

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13 Milliseconds: The Incredible Speed at Which Your Brain Can Identify an Image

13 Milliseconds: The Incredible Speed at Which Your Brain Can Identify an Image | Bounded Rationality and Beyond | Scoop.it
Scientist thought it took the brain at least one-tenth of a second to understand an image, until now.
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Jonathan Haidt: radici morali dei liberali e conservatori

Lo psicologo Jonathan Haidt studia i cinque principi morali che stanno alla base delle nostre scelte politiche, sia che siamo di sinistra, di destra o di centro. In questo sorprendente discorso , Haidt definisce i principi morali che liberali e conservatori tendono a onorare di piu'..
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Six ways our brains make bad financial decisions

Six ways our brains make bad financial decisions | Bounded Rationality and Beyond | Scoop.it

When it comes to money, we don’t know why we do the things we do – but behavioural economics has a few good hunches.

We all do it: hold on to a stock when every indicator screams sell, or spend our entire bonus on a new car instead of paying off debt. A whole new area of science called behavioural economics, or BE – a blend of psychology, economics, finance and sociology – has sprung up to explain why. According to BE pioneer and Duke University professor Dan Ariely (author of the bestseller Predictably Irrational) and Rotman School of Management researcher Nina Mazar, our brains are hard-wired to choose short-term payoff over long-term gain. Here are six common mistakes investors make – and how to avoid them.

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Fai uno sbaglio? Le donne lo capiscono prima

Fai uno sbaglio? Le donne lo capiscono prima | Bounded Rationality and Beyond | Scoop.it

I ‘neuroni specchio’ riconoscono azioni inappropriate in 200 millisecondi. La ricerca, condotta dal Cnr e dall’Università di Milano-Bicocca, indica anche che le donne hanno una maggiore suscettibilità alle azioni incongruenti rispetto agli uomini. Il gruppo di ricerca di Alice Mado Proverbio dell’Università di Milano-Bicocca insieme a Federica Riva e Alberto Zani dell’Istituto di bioimmagini e fisiologia molecolare (Ibfm) del Consiglio nazionale delle ricerche di Milano ha registrato i potenziali bioelettrici cerebrali negli esseri umani alla ricerca dei ‘neuroni specchio’, già identificati nella scimmia con registrazione da singola cellula.

Lo studio, recentemente apparso sulla rivista Neuropsychologia, consente di comprendere i processi neuronali che si attivano nel momento in cui osserviamo un’azione ‘sbagliata’ inducendoci, per esempio, a non imitarla.

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Influencing behaviour: The mindspace way

I

 a b s t r a c t

The ability to influence behaviour is central to many of the key policy challenges in areas such as health, finance and climate change. The usual route to behaviour change in economics and psychology has been to attempt to ‘change minds’ by influencing the way people think through information and incentives. There is, however, increasing evidence to suggest that ‘changing contexts’ by influencing the environments within which people act (in largely automatic ways) can have important effects on behaviour. We present a mnemonic, MINDSPACE, which gathers up the nine most robust effects that influence our behaviour in mostly automatic (rather than deliberate) ways. This framework is being used by policymakers as an accessible summary of the academic literature. To motivate further research and academic scrutiny, we provide some evidence of the effects in action and highlight some of the significant gaps in our knowledge.

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An Evolutionary Theory For Why You Love Glossy Things

An Evolutionary Theory For Why You Love Glossy Things | Bounded Rationality and Beyond | Scoop.it
People's taste for shiny stuff might be rooted in a very basic instinct. 

There's a great deal to like about this study. The researchers crafted their experiments carefully, tried to eliminate alternative explanations, and presented a theory for others scientists to explore further. At the same time, there's a lot to question. People may associate shiny stuff with wealth, for instance, but they associate water with wealth, too. Parsing out how much of the glossy-water connection is socialized and how much might be instinctual is a great challenge that no study can hope to conquer on its own.

Beyond that, any explanation for why we prefer glossy to matte must also account for the fact that we don't always prefer glossy to matte. Sometimes glossy interferes with readability (say, a sign that reflects bright light). Sometimes it conveys the wrong message (say, a glossy food ad that conjures up thoughts of grease). And sometimes it's just enough alreadyand we want something different. Evolution might drive some preferences, but preferences evolve, too.

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Heuristics and Representativeness | Cognitive Consonance

Heuristics and Representativeness | Cognitive Consonance | Bounded Rationality and Beyond | Scoop.it

In 1973, Kahneman and Tversky conducted an experiment to show how often people overlook base-rate frequency when assessing probability outcomes. Participants were shown short personality descriptions of several .

People tend be overly confident in their estimates even when they are pointed out the irrationality of their thinking (Fischhoff et al. 1977). Baron (1994) found evidence that one reason for our inappropriately high confidence our tendency not to search for reasons why we might be wrong. As ridiculous as this may seem, studies consistently confirm that people ignore new information to hold on to their original belief. Weinstein (1989) reported a study where racetrack handicappers were slowly given more and more information about the outcomes of the race. Despite becoming more informed, the participants held onto their original belief with more confidence. DeBondt and Thaler (1986) propose that when new information arrives, investors revise their beliefs by overweighting the new information and underweighting the earlier information.


Via Emre Erdogan
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Imperfect choice or imperfect attention Understanding strategic thinkin in private information games

Abstract
To understand the thinking process in private information games, we use \Mousetracking" to record which payo s subjects attend to. The games have three information states and vary in strategic complexity. Subjects consistently deviate from Nash equilibrium choices and often fail to look at payo s which they need to in order to compute an quilibrium response. Choices and lookup are similar when stakes are higher. When cluster analysis is used to group subjects according to lookup patterns and choices, three clusters appear to correspond approximately to level-3, level-2 and level-1 thinking in level-k models, and a fourth cluster is consistent with inferential mistakes (as, for example, in QRE or cursed Equilibrium theories). Deviations from Nash play are associated with failure to look at the necessary payo s. The time durations of looking at key payo s can predict choices, to some extent, at the individual level and at the trial-by-trial level.

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▶ BE101x: Behavioural Economics in Action - YouTube

In this EdX course, taught by Prof. Dilip Soman from the University of Toronto's Rotman School of Management, you will learn how to apply the principles and methods of Behavioural Economics to everyday decision-making, policy creation and more.
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Paul Zak: Fiducia, moralità e ossitocina | Video on TED.com ...

Paul Zak: Fiducia, moralità e ossitocina | Video on TED.com ... | Bounded Rationality and Beyond | Scoop.it
See on Scoop.it - Bounded Rationality and Beyond Che cosa guida il nostro desiderio di comportarci secondo morale? Che cosa guida il nostro desiderio di comportarci secondo morale? Il neuroeconomista Paul Zak mostra ...
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UNDERSTANDING TH ILLOGICAL

While some are hailing the application of behavioural economics in advertising a revelation that can help marketers predict illogical consumer behaviour, it is yet to really take off in Australia. Celia Britton finds out why. 

Understanding consumer behaviour and influencing change is arguably
the basis of any good marketing strategy, right? Yet many are hailing
the introduction of behavioural economics (BE) – which has the goal of influencing people’s behaviour at its core – into marketing, as revolutionary, suggesting it hasn’t been applied, at least not in a conscious or systematic way, in the past

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20th APS Annual Convention - Inside the Psychologist's Studio with Daniel Kahneman on Vimeo

Inside the Psychologist's Studio with Daniel Kahneman Interviewed by Richard H. Thaler 20th APS Annual Convention Chicago, IL, USA -- 2008 When your field of research is judgment and decision making, it’s not every day you see a 45 minute interview on your topic. Or every week. Or every year. So when we were sent this interview featuring two JDM giants, Richard Thaler and Nobel Laureate Daniel Kahneman, we knew we had to run it, even if it is from 2008. 

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