# Bounded rationality

Plus miscellaneous rationality postulates restricting von Neumann-Morgenstern

January 13, 2012 — January 15, 2022

Prospect theory, Kahnemann-and-Tversky style. Rational Heuristics, Gigerenzer-and-Todd style. Docility, Herbert-Simon-wise. Behavioural economics more generally.

- Such research is the bread-and-butter of PR and advertising agencies, PsyOps departments and interior designers the world over, but they don’t usually publish.
- The way the brain buys is a summary of “neuromarketing” in
*The Economist* - Finite Rationality and Interpersonal Complexity in Repeated Games, E. Kalai & W. Stanford

## 1 In markets and societies

## 2 For risk

see risk perception.

## 3 For learning and action

Can we get anywhere with predictive coding?

## 4 …and trust

Maybe trust machines.

## 5 In groups

Let us think of the wisdom of crowds.

## 6 Introspective

## 7 Incoming

Thinking about this very computationally is the mainstay of APXHARD, e.g. P ⊂ NP causes Political Polarization

DRMacIver’s Notebook: Three key problems with Von-Neumann Morgenstern Utility Theory

The first part is about physical difficulties with measurement—you can only know the probabilities up to some finite precision. VNM theory handwaves this away by saying that the probabilities are perfectly known, but this doesn’t help you because that just moves the problem to be a computational one, and requires you to be able to solve the halting problem. e.g. choose between \(L_1=p B+(1-p) W\) and \(L_2=q B+(1-q) W\) where \(p=0.0 \ldots\) until machine \(M 1\) halts and 1 after and \(q\) is the same but for machine \(M 2\).

The second demonstrates that what you get out of the VNM theorem is not a utility function. It is an algorithm that produces a sequence converging to a utility function, and you cannot recreate even the original decision procedure from that sequence without being able to take the limit (which requires running an infinite computation, again giving you the ability to solve the halting problem) near the boundary.

## 8 References

*Phishing for Phools: The Economics of Manipulation and Deception*.

*Ecological Economics*.

*American Economic Review*.

*Science*.

*The Evolution of Cooperation*.

*Journal of Institutional Economics*.

*Philosophy of Science*.

*Encyclopedia of Cognitve Science*.

*Science*.

*American Political Science Review*.

*A Theory of Cognitive Dissonance*.

*Decision Analysis*.

*Trends in Cognitive Sciences*.

*Journal of Public Economics*.

*Law, Legislation and Liberty*.

*Behavioral and Brain Sciences*.

*Nature*.

*PLoS Medicine*.

*Physical Review E*.

*Journal of Artifical Intelligence Research*.

*The American Economic Review*.

*Complexity*.

*Journal of Economic Literature*.

*The Bell Journal of Economics*.

*Organizations*.

*The Psychological Review*.

*Science*.

*The Journal of Political Economy*.

*European Journal of Operational Research*.

*Chaos: An Interdisciplinary Journal of Nonlinear Science*.

*Science*.

*Organization Science*.

*Machine Learning*.

*arXiv:1109.4853*.

*Rationality in Action: Contemporary Approaches*.

*Administrative Behavior*.

*SSRN Electronic Journal*.

*Complex.*

*Arxiv Preprint arXiv:0712.4382*.

*Journal of Economic Methodology*.

*The Review of Economic Studies*.

*European Economic Review*.