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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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Explaining Away Responsibility: Effects of Scientific Explanation on Perceived Culpability

Explaining Away Responsibility: Effects of Scientific Explanation on Perceived Culpability | Bounded Rationality and Beyond | Scoop.it
College students and suburban residents completed questionnaires designed to examine the tendency of scientific explanations of undesirable behaviors to mitigate perceived culpability. In vignettes relating behaviors to an explanatory antecedent, we manipulated the uniformity of the behavior given the antecedent, the responsiveness of the behavior to deterrence, and the explanatory antecedent-type offered- physiological (e.g., a chemical imbalance) or experiential (e.g., abusive parents). Physiological explanations had a greater tendency to exonerate actors than did experiential explanations. The effects of uniformity and deterrence were smaller, and the latter had a significant effect on judgment only when physiological rather than experiential antecedents were specified. Physiologically explained behavior was more likely to be characterized as "automatic," and willpower and character were less likely to be cited as relevant to the behavior. Physiological explanations of undesirable behavior may mitigate blame by inviting nonteleological causal attributions. Keywords: person perception, volition, moral attribution, responsibility
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The 11 Ways That Consumers Are Hopeless at Math

The 11 Ways That Consumers Are Hopeless at Math | Bounded Rationality and Beyond | Scoop.it
This is your brain on shopping, and it's not very smart...
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Free Beer

Free Beer | Bounded Rationality and Beyond | Scoop.it

On May 12, 2011, I wrote an essay as part of my application for the MBA that I am two weeks away from completing. The focus of the essay was on the combination of psychology and business, and I researched inspiring individuals including Sendhil Mullainathan, a leading behavioral economist, and Muhammad Yunus, from Bangladesh, who won the 2006 Nobel Peace Prize for the Grameen Bank. He gives microcredit to people in poor countries; 94% of recipients are female. Additionally, I spoke with Professor Richard Thaler. His focus is on Behavioral Economy and Behavioral Finance, which links economy and psychology. Specifically, he focuses on public as well as private decision-making, which he calls Choice Architecture. Professor Thaler encouraged me to read his books, which I very much enjoyed. Thaler wants to make the world a better place by giving people tools to make better decisions regarding health, wealth and happiness.

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Complexity, Bounded Rationality, and Heuristic Search by William MacLeod :: SSRN

Complexity, Bounded Rationality, and Heuristic Search by William MacLeod :: SSRN | Bounded Rationality and Beyond | Scoop.it
This paper explores the use of heuristic search algorithms for modeling human decision making. It is shown that this algorithm is consistent with many observed behavioral regularities, and may help explain deviations from rational choice. The main insight is that the heuristic function can be viewed as formal implementation of one aspect of emotion as discussed in {Descarte's Error} by Antonio Damasio. Consistent with Damasio's observations, it is shown that the quality of decision making is very sensitive to the nature of the heuristic ("emotion"), and hence this may help us better understand the role of emotion in rational choice theory.
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Computational Intelligence Determines Effective Rationality by Edward Tsang :: SSRN

Computational Intelligence Determines Effective Rationality by Edward Tsang :: SSRN | Bounded Rationality and Beyond | Scoop.it
Rationality is a fundamental concept in economics. Most researchers will accept that human beings are not fully rational.
Herbert Simon suggested that we are “bounded rational”. However, it is very difficult to quantify “bounded rationality”, and
therefore it is difficult to pinpoint its impact to all those economic theories that depend on the assumption of full rationality.
Ariel Rubinstein proposed to model bounded rationality by explicitly specifying the decision makers’ decision-making procedures.
This paper takes a computational point of view to Rubinstein’s approach. From a computational point of view, decision procedures
can be encoded in algorithms and heuristics. We argue that, everything else being equal, the effective rationality of an agent
is determined by its computational power — we refer to this as the computational intelligence determines effective rationality
(CIDER) theory. This is not an attempt to propose a unifying definition of bounded rationality. It is merely a proposal of
a computational point of view of bounded rationality. This way of interpreting bounded rationality enables us to (computationally)
reason about economic systems when the full rationality assumption is relaxed.
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Heuristic in the economic: a note on Robert Nozick - Munich Personal RePEc Archive

Heuristic in the economic: a note on Robert Nozick - Munich Personal RePEc Archive | Bounded Rationality and Beyond | Scoop.it

In this paper we have presented arguments for heuristics on economics research. In particular, have been important aspects that show how the tradition of the theory, to make principle simplicity to represent many empirical data of experience or information, was one of the goals set by the fathers of the discipline: Adam Smith, John Stuart Mill, and Jeremy Bentham.

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The Revelation Principle of Bounded Rationality

In the present paper I introduce the revelation principle of bounded rationality. The principle states that any behavior that a model of bounded rationality exhibits can be implemented as the choice of an agent with preferences and beliefs consistent with Savage-Bayesian rationality. The principle provides a way to unify the two main research programs on the foundations of game theory: the decision-theoretic program and the bounded rationality program. I illustrate how the principle works by providing a solution to the ''El Farol'' problem, a deterministic model of bounded rationality that exhibits stochastic equilibrium behavior. The unification shows that one need not go outside the received theory of Savage-Bayesian decision making to provide adequate foundations for equilibrium analysis.
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The Behavior-Based Hypercycle

The Behavior-Based Hypercycle | Bounded Rationality and Beyond | Scoop.it
Our paper for the Artificial Life 13 conference has been published by the MIT Press. The Behavior-Based Hypercycle: From Parasitic Reaction to Symbiotic Behavior Tom Froese, Takashi Ikegami and Nat...
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Disclosing information about the self is intrinsically rewarding

Humans devote 30–40% of speech output solely to informing others of their own subjective experiences. What drives this propensity for disclosure? Here, we test recent theories that individuals place high subjective value on opportunities to communicate their thoughts and feelings to others and that doing so engages neural and cognitive mechanisms associated with reward. Five studies provided support for this hypothesis. Self-disclosure was strongly associated with increased activation in brain regions that form the mesolimbic dopamine system, including the nucleus accumbens and ventral tegmental area. Moreover, individuals were willing to forgo money to disclose about the self. Two additional studies demonstrated that these effects stemmed from the independent value that individuals placed on self-referential thought and on simply sharing information with others. Together, these findings suggest that the human tendency to convey information about personal experience may arise from the intrinsic value associated with self-disclosure

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The Aging Investor: Insights from Neuroeconomics

Individuals in most industrialized countries have to make investment decisions throughout their adult life span to save for their retirement. These decisions substantially affect their living standards in old age. Research on cognitive aging has already demonstrated several changes in cognitive functions (e.g., processing speed) that likely influence investment decisions. This review brings together research on behavioral and neural aspects of financial decision making and aging to advance knowledge on age-related changes in financial decision making. The dopaminergic system plays a key role in financial decision making, both in financial decisions from description and financial decisions from experience. Importantly, both dopaminergic neuromodulation and financial decision making change during healthy aging. Especially when the parameters of the return distribution have to be learned from experience, older adults show a different and suboptimal choice behavior compared to younger adults.
Based on these observations we suggest ways to circumvent the age-related bias in financial decision making to improve older adults’ wealth.

http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2012-038.pdf

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La mente finanziaria – Economia e psicologia al servizio dell’investitore

La mente finanziaria – Economia e psicologia al servizio dell’investitore | Bounded Rationality and Beyond | Scoop.it
A differenza di quanto si è soliti credere numerosi errori e comportamenti sbagliati non sono una peculiarità degli investitori italiani. Per capire e quindi poter operare con successo sui mercati finanziari è fondamentale la conoscenza della psicologia.
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Bounded Rationality in the Economics of Organization Present Use and (Some) Future Possibilities

Abstract: The way in which bounded rationality enters contemporary organizational economics theorizing is examined. It is argued that, as it is being used, bounded rationality is neither necessary nor sufficient for producing the results of organizational economics. It is at best a rhetorical device, used for the purpose of loosely explaining incomplete contracts. However, it is possible to incorporate much richer notions ofbounded rationality, founded on research in cognitive psychology, and to illuminate the study of economic organization by means of such notions. A number of examples are provided.

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The relative importance of adolescent skills and behaviors for adult earnings: A cross-national study

Abstract. Seeking convergent ndings in ve data sets from four coun- tries, we assess the relative importance of adolescent skills and behaviors for completed schooling and labor market success in adulthood. We pro- vide a framework for classifying \noncognitive" skills and use data designed by developmental psychologists to provide reliable measures of a variety of achievement and behavioral skills assessed between ages 13 and 16. Re- sults show that adolescent achievement, particularly math achievement, is a stronger predictor of completed schooling than measures of noncognitive skills. Achievement skills also out-predict noncognitive skills with regard to adult earnings, although the di erences are not as striking
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Is Behavioral Economics Doomed?: The Ordinary versus the Extraordinary - Open Book Publishers

Is Behavioral Economics Doomed?: The Ordinary versus the Extraordinary - Open Book Publishers | Bounded Rationality and Beyond | Scoop.it
It is fashionable to criticize economic theory for focusing too much on rationality and ignoring the imperfect and emotional way in which real economic decisions are reached. All of us facing the global economic crisis wonder just how rational economic men and women can be. Behavioral economics – an effort to incorporate psychological ideas into economics – has become all the rage.

This book by well-known economist David K. Levine questions the idea that behavioral economics is the answer to economic problems. It explores the successes and failures of contemporary economics both inside and outside the laboratory. It then asks whether popular behavioral theories of psychological biases are solutions to the failures. It not only provides an overview of popular behavioral theories and their history, but also gives the reader the tools for scrutinizing them.

Levine’s book is essential reading for students and teachers of economic theory and anyone interested in the psychology of economics.
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Sentences to ponder

Sentences to ponder | Bounded Rationality and Beyond | Scoop.it

Some sentences on behavioral economics to ponder:

 

........ The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers.

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From Bounded Rationality to Behavioral Economics by Massimo Egidi :: SSRN

From Bounded Rationality to Behavioral Economics by Massimo Egidi :: SSRN | Bounded Rationality and Beyond | Scoop.it
The paper provides an brief overview of the state of the art in the theory of rational decision making since the 1950's, and focuses specially on the evolutionary justification of rationality. It is claimed that this justification, and more generally the economic methodology inherited from the Chicago school, becomes untenable once taking into account Kauffman's Nk model, showing that if evolution it is based on trial-and-error search process, it leads generally to sub-optimal stable solutions: the 'as if' justification of perfect rationality proves therefore to be a fallacious metaphor. The normative interpretation of decision-making theory is therefore questioned, and the two challenging views against this approach, Simon's bounded rationality and Allais' criticism to expected utility theory are discussed. On this ground it is shown that the cognitive characteristics of choice processes are becoming more and more important for explanation of economic behavior and of deviations from rationality. In particular, according to Kahneman's Nobel Lecture, it is suggested that the distinction between two types of cognitive processes - the effortful process of deliberate reasoning on the one hand, and the automatic process of unconscious intuition on the other - can provide a different map with which to explain a broad class of deviations from pure 'olympian' rationality. This view requires re-establishing and revising connections between psychology and economics: an on-going challenge against the normative approach to economic methodology.
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Corporate Governance in Comparative Perspective: Prospects for Convergence by Sanford Jacoby :: SSRN

Corporate Governance in Comparative Perspective: Prospects for Convergence by Sanford Jacoby :: SSRN | Bounded Rationality and Beyond | Scoop.it
Pundits of globalization predict the eventual demise of the stakeholder corporate governance model found in Europe and Japan and its replacement by the Anglo-American shareholder model. Were this to occur, it would sharply change the relationship of employees to their employer in many parts of the world. Yet it's not obvious that convergence is inevitable. There is considerable inertia and persistence of national governance models due to factors such as path dependence, bounded rationality, uncertain macroeconomic benefits, and weak globalization pressures. Moreover, while one can find evidence of institutional diffusion across borders, it occurs in multiple directions; not all roads lead to Wall Street.
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Neuroni a specchio, 20 anni dopo

Neuroni a specchio, 20 anni dopo | Bounded Rationality and Beyond | Scoop.it

A 20 anni dalla scoperta dei Mirror Neurons, il Prof. Giacomo Rizzolatti e il gruppo di Parma organizzano a Erice ai primi di settembre un workshop sulle "new frontiers". Con l'occasione BrainFactor ripropone ai lettori gli articoli più significativi pubblicati sulla testata, con un issue indicizzato in Doaj  in vista della stampa dopo l'estate di un monografico speciale realizzato con la rivista Topics in Medicine.

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Herbert Simon: bounded rationality y teoría de las organizaciones - Munich Personal RePEc Archive

Herbert Simon: bounded rationality y teoría de las organizaciones - Munich Personal RePEc Archive | Bounded Rationality and Beyond | Scoop.it

This article evaluates Herbert A. Simon’s contribution to organization theory, placing special emphasis on the criterion of bounded rationality. Simon’s criticism of the orthodox version of organizational bureaucracy is interpreted and his analysis is extended to institutional economics. One of Simon’s main achievements in organizational theory consisted of analytically evaluating the psychology of individual and collective behaviour, thereby opening up the way for future investigation by D. Kahneman and T. Schelling.

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Keep to sustain or keep to exploit? Why firms keep hard evidence - Munich Personal RePEc Archive

Keep to sustain or keep to exploit? Why firms keep hard evidence - Munich Personal RePEc Archive | Bounded Rationality and Beyond | Scoop.it

We develop a model wherein collusive firms' decisions to keep or to destroy the hard evidence is endogenous. Unlike previous literature, we assume that the administration of the cartel crucially depends on the existence of the hard evidence. Within this framework, we explore the impact of a leniency program on whether firms' incentives are to destroy or to keep the hard evidence. Moreover, we examine firms' incentives to report or not to report the hard evidence to the antitrust authority. We show that firms may willfully keep the hard evidence, even if a leniency program is not available, in order to enhance the stability of the cartel. Additionally, we prove that firms are more inclined to keep the hard evidence when a leniency program is available. Finally, we demonstrate that firms are more likely to destroy the hard evidence when the collusive profits-fine ratio increases.

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Identifying Influential and Susceptible Members of Social Networks

Identifying social influence in networks is critical to understanding how behaviors spread. We present a method that uses in vivo randomized experimentation to identify influence and susceptibility in networks while avoiding the biases inherent in traditional estimates of social contagion. Estimation in a representative sample of 1.3 million Facebook users showed that younger users are more susceptible to influence than older users, men are more influential than women, women influence men more than they influence other women, and married individuals are the least susceptible to influence in the decision to adopt the product offered. Analysis of influence and susceptibility together with network structure revealed that influential individuals are less susceptible to influence than noninfluential individuals and that they cluster in the network while susceptible individuals do not, which suggests that influential people with influential friends may be instrumental in the spread of this product in the network.


Via Ashish Umre
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Resilient Development of Socio-Economic Systems: Do Social Media Shrink Our Brain?

Resilient Development of Socio-Economic Systems: Do Social Media Shrink Our Brain? | Bounded Rationality and Beyond | Scoop.it
Do Social Media Shrink Our Brain?..Start considering that (A) Tamir and Mitchell 2012 show sound evidence that when we talk about our own personal experiences we activate relevant reward processes at the neural and cognitive level, and this is crucial in explaining why we talk so much about ourselves (30-40% on average, and ~80% on social media as Twitter).
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Resilient Development of Socio-Economic Systems

Resilient Development of Socio-Economic Systems | Bounded Rationality and Beyond | Scoop.it
Agent-based models, behavioral and empirical analyses shedding light on the socio-economic mechanisms which promote and sustain development...
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Il blog dell'Indice dei Libri del Mese: I soldi in mente

Il blog dell'Indice dei Libri del Mese: I soldi in mente | Bounded Rationality and Beyond | Scoop.it

Diversi recenti libri affrontano il tema del rapporto tra mente, psicologia e scelte economiche. È un tema di attualità. Paolo Legrenzi, ad esempio, nel libro I soldi in testa. Psicoeconomia della vita quotidiana (Laterza, Roma-Bari, 2011) racconta come le caratteristiche psicologiche degli esseri umani possano portare a commettere errori banali con potenziali effetti importanti in termini di perdite o mancati guadagni. Ferretti, Rubaltelli e Rumiati offrono un’analisi più specialistica della letteratura sulle scelte di investimento (La mente finanziaria. Economia e psicologia al servizio dell’investitore. Il Mulino, Bologna, 2011).

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Money and prices in models of bounded rationality in high inflation economies

This paper studies the short run correlation of inflation and money growth. We study whether a model of learning does better or worse than a model of rational expectations, and we focus our study on countries of high inflation. We take the money process as an exogenous variable, estimated from the data through a switching regime process. We find that the rational expectations model and the model of learning both offer very good explanations for the joint behavior of money and prices.

http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp469.pdf

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