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Author: Rui Guan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Evidence suggests that individual behavior may deviate from preference maximization due to limited attention to alternatives. I study this issue by developing a framework that incorporates choice procedures where individuals consider at least two available alternatives. I show that choices made under sequential elimination (where individuals sequentially eliminate alternatives until only one survives) always maximize preferences, whereas choices made directly from menus do not. Using a controlled experiment, I find that sequential elimination substantially improves individual consistency with preference maximization, especially for subjects with low cognitive ability. Moreover, I explore individual preferences for sequential elimination and their implications.
Author: Rui Guan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Evidence suggests that individual behavior may deviate from preference maximization due to limited attention to alternatives. I study this issue by developing a framework that incorporates choice procedures where individuals consider at least two available alternatives. I show that choices made under sequential elimination (where individuals sequentially eliminate alternatives until only one survives) always maximize preferences, whereas choices made directly from menus do not. Using a controlled experiment, I find that sequential elimination substantially improves individual consistency with preference maximization, especially for subjects with low cognitive ability. Moreover, I explore individual preferences for sequential elimination and their implications.
Author: Gerd Gigerenzer
Publisher: MIT Press
ISBN: 9780262571647
Category : Business & Economics
Languages : en
Pages : 404
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Book Description
In a complex and uncertain world, humans and animals make decisions under the constraints of limited knowledge, resources, and time. Yet models of rational decision making in economics, cognitive science, biology, and other fields largely ignore these real constraints and instead assume agents with perfect information and unlimited time. About forty years ago, Herbert Simon challenged this view with his notion of "bounded rationality." Today, bounded rationality has become a fashionable term used for disparate views of reasoning. This book promotes bounded rationality as the key to understanding how real people make decisions. Using the concept of an "adaptive toolbox," a repertoire of fast and frugal rules for decision making under uncertainty, it attempts to impose more order and coherence on the idea of bounded rationality. The contributors view bounded rationality neither as optimization under constraints nor as the study of people's reasoning fallacies. The strategies in the adaptive toolbox dispense with optimization and, for the most part, with calculations of probabilities and utilities. The book extends the concept of bounded rationality from cognitive tools to emotions; it analyzes social norms, imitation, and other cultural tools as rational strategies; and it shows how smart heuristics can exploit the structure of environments.
Author: Univ Of Chicago
Publisher: Mit Press
ISBN: 9780262519434
Category : Business & Economics
Languages : en
Pages : 336
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Book Description
Offering alternative models based on such concepts as satisficing(acceptance of viable choices that may not be the undiscoverableoptimum) and bounded rationality (the limited extent to which rationalcalculation can direct human behavior), Simon shows concretely whymore empirical research based on experiments and direct observation, rather than just statistical analysis of economic aggregates, isneeded.
Author: Ran Spiegler
Publisher: Oxford University Press
ISBN: 0199924236
Category : Business & Economics
Languages : en
Pages : 269
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Book Description
Conventional economic theory assumes that consumers are fully rational, that they have well-defined preferences and easily understand the market environment. Yet, in fact, consumers may have inconsistent, context-dependent preferences or simply not enough brain-power to evaluate and compare complicated products. Thus the standard model of consumer behavior-which depends on an ideal market in which consumers are boundlessly rational-is called into question. While behavioral economists have for some time confirmed and characterized these inconsistencies, the logical next step is to examine the implications they have in markets. Grounded in key observations in consumer psychology, Bounded Rationality and Industrial Organization develops non-standard models of “boundedly rational” consumer behavior and embeds them into familiar models of markets. It then rigorously analyses each model in the tradition of microeconomic theory, leading to a richer, more realistic picture of consumer behavior. Ran Spiegler analyses phenomena such as exploitative price plans in the credit market, complexity of financial products and other obfuscation practices, consumer antagonism to unexpected price increases, and the role of default options in consumer decision making. Spiegler unifies the relevant literature into three main strands: limited ability to anticipate and control future choices, limited ability to understand complex market environments, and sensitivity to reference points. Although the challenge of enriching the psychology of decision makers in economic models has been at the frontier of theoretical research in the last decade, there has been no graduate-level, theory-oriented textbook to cover developments in the last 10-15 years. Thus, Bounded Rationality and Industrial Organization offers a welcome and crucial new understanding of market behavior-it challenges conventional wisdom in ways that are interesting and economically significant, and which in the end effect the well-being of all market participants.
Author: B. Agarwal
Publisher: Springer
ISBN: 0230522343
Category : Business & Economics
Languages : en
Pages : 281
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Book Description
Economics has paid little attention to the psychology of economic behaviour, leading to somewhat simplistic assumptions about human nature. The psychological aspects have typically been reduced to standard utility theory, based on a narrow conception of rationality and self-interest maximization. The contributions in this volume, some focused on analytical models and methodology, others on laboratory and field experiments, challenge these assumptions, and provide novel and complex understandings of human motivation and economic decision-making. With a pioneering introduction by the book's two editors, this volume brings together exciting contributions to a field that is rapidly growing in influence and reach.
Author: Jérémy Boccanfuso
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This dissertation is a collection of three essays on the economic implications of limited attention. It is supplemented with a general introduction (Chapter 1).The first chapter introduces an ongoing paradigm shift in the macroeconomic literature from full-information rational expectations to rationally inattentive economic agents. It then presents some characteristics of this new class of models and current challenges in the literature that motivates the work in this dissertation.The second chapter is a contribution to consumption theory. It studies the consumption-saving problem of a consumer who faces a fixed cost for paying attention to noisy information and whose attention strategy, i.e., whether or not she pays attention, can be a function of the underlying information. At the optimum, consumers chose to be at- tentive when evidence accumulates far from their prior beliefs. The model provides an explanation for four puzzling empirical findings on consumption and expectations. First, consumers' attention depends on the information content. Second, aggregate information rigidities vary over the business cycle. Third, consumers only react to large anticipated shocks and neglect the impact of small ones. Fourth, aggregate consumption dynamics vary over the business cycle. The third chapter is a theoretical contribution to the literature in behavioral public economics. It studies how information frictions in agents' tax perceptions affect the design of actual tax policy. Developing a positive theory of tax policy, it shows that agents' inattention interacts with policymaking and induces the government to implementinefficiently high tax rates. It then quantifies the magnitude of this policy distortion for the US economy. Overall, the findings suggest that existing information frictions - and thereby tax complexity - lead to undesirable, large and regressive tax increases.The fourth chapter is an empirical contribution to the macroeconomic literature on information frictions. Using the ECB survey of professional forecasters, it estimates a two margin forecast formation process that allows for forecast rounding on individual and consensus forecast data. Forecasters decide when to revise their forecast (extensive margin). When they do, they slowly incorporate new information (intensive margin) and may report a rounded value for their new forecast (rounding). It finds that these three rigidities simultaneously exist and estimate their respective contribution. The overall forecast stickiness is almost exclusively the consequence of the rigidities at the intensive margin. It then derives quarterly time series for the evolution of information frictions and proposes a simple mapping to account for these variations in economic models.
Author: Isabelle Brocas
Publisher: Oxford University Press on Demand
ISBN: 9780199257225
Category : Business & Economics
Languages : en
Pages : 231
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Book Description
Psychologists have a long tradition of studying human behavior, strengths and weaknesses, biases and limitations. Economists have constructed normative frameworks that capture the most important elements of human decision-making and developed powerful tools to determine individual and strategic choices in a variety of situations. Only recently have their strengths been combined and economic models enriched with key ingredients found in psychological studies. This volume covers four ofthe most important themes in this interdisciplinary field: feelings, inconsistencies, limitations and biases. Each chapter contributes to a more comprehensive and accurate modelling and description of human behavior. Its four parts cover: the origins, formation, and evolution of beliefs; consistency, commitment, and intertemporal separability of dynamic choices; attention, preference formation, and risk evaluation in limited cognition; and affective behaviour, specifically the role of emotionsin decision making.
Author: Sanjit Dhami
Publisher: MIT Press
ISBN: 0262369656
Category : Business & Economics
Languages : en
Pages : 553
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Book Description
Two leaders in the field explore the foundations of bounded rationality and its effects on choices by individuals, firms, and the government. Bounded rationality recognizes that human behavior departs from the perfect rationality assumed by neoclassical economics. In this book, Sanjit Dhami and Cass R. Sunstein explore the foundations of bounded rationality and consider the implications of this approach for public policy and law, in particular for questions about choice, welfare, and freedom. The authors, both recognized as experts in the field, cover a wide range of empirical findings and assess theoretical work that attempts to explain those findings. Their presentation is comprehensive, coherent, and lucid, with even the most technical material explained accessibly. They not only offer observations and commentary on the existing literature but also explore new insights, ideas, and connections. After examining the traditional neoclassical framework, which they refer to as the Bayesian rationality approach (BRA), and its empirical issues, Dhami and Sunstein offer a detailed account of bounded rationality and how it can be incorporated into the social and behavioral sciences. They also discuss a set of models of heuristics-based choice and the philosophical foundations of behavioral economics. Finally, they examine libertarian paternalism and its strategies of “nudges.”
Author: Sharon Gifford
Publisher:
ISBN:
Category :
Languages : en
Pages : 33
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Book Description
A utility maximizing model of allocating limited attention between adopting new behaviors and adapting current behaviors generates an optimal policy that resembles commonly observed, and apparently irrational, behavioral rules in financial markets. The ability to update current behaviors implies an endogenous opportunity cost of adopting a new behavior. If this cost is sufficiently high, then behaviors are less than substantively rational. However, if this high cost of attention is ignored, then behaviors are less rational than if this cost is considered. This is because more rational behaviors are updated less frequently and so economize on attention in the future.
Author: Mary Zey
Publisher: SAGE Publications
ISBN: 1452254966
Category : Business & Economics
Languages : en
Pages : 152
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Book Description
An ambitious new work by a well-respected economic sociologist, Rational Choice Theory and Organizational Theory: A Critique, offers a new perspective on the strategy and actions of organizations. In merging economic, psychological, and sociological literature as they focus on organizations, author Mary Zey contends that a historical political economy contingency theory provides the key to understanding how organizations function and the relationships between individuals and organizations in which they work. She brings to our attention that economic and other types of organizations differ in their behavior from rational individuals and rational markets. Zey integrates macro- and micro-levels of analysis while drawing together internal and external contingencies to explain how decisions are taken. Zey interprets, synthesizes, and critiques the important work of renowned scholars of rational choice, finance, and organizations including James March, Michael Jensen, and Oliver Williamson to analyze corporate decision making, differentiating it from individual decision making. The analysis is distinguished by inclusive thinking and new approaches to issues that have long confronted those who think about, theorize about, work with, and manage organizations. Mary ZeyÆs work expands the understanding of decision making by presenting evidence that points to the wide range and complexity of human decision making. The rational choice theorists, led most notably by Oliver Williamson and James Coleman, adhere to the tenets of transaction cost analysis and agency theory when looking at micro- and macro-level decisions made by people and organizations. Other models of decision making (habit, emotion, moral and ethical values, among others) have been labeled as deviations from formal rationality. Mary Zey calls these "deviations" alternative motives behind decision making, and her books are an attempt to present the leading work from this point of view. Rational Choice Theory and Organizational Theory: A Critique is the first single-authored volume to analyze and present an alternative model to decision making theory and serves as a companion to Decision Making (Sage, 1992). Rational Choice Theory and Organizational Theory will be useful to professors and students of decision making theory, organizational theory, sociology of organizations, and social theory.
