Bounded rationality

and miscellaneous non-von Neumann-Morgenstern rationality postulates

Prospect theory, Kahnemann-and-Tversky style. Rational Heuristics, Gigerenzer-and-Todd style. Docility, Herbert-Simon-wise. Friedrich Hayek on information aggregation in markets, and the rest of those Austrian Economists. Behavioural economics more generally.

How can we handle a market in the large where the boundedly rational dynamics of human decisions are in effect? Does it even matter? Are markets systems for fabricating rational-like behaviour from irrational agents? (Hayek might argue this, and I think also Gode and Sunder of Zero Intelligence Agents fame. Friedman argued that in fact that markets effectively turn people into rational agents, which is yet stronger.)

Are there useful measures of “how much rationality” humans have that we can use for aggregate modelling? (as opp. the minute and detailed ones that Kahnemann and Tversky devise, that are hard to scale up.) Would statistical learning theory help us here? Even computational complexity?

To Read


Anderies, John M. 2000. “On Modeling Human Behavior and Institutions in Simple Ecological Economic Systems.” Ecological Economics 35: 393–412.
Arthur, W Brian. 1994. “Inductive Reasoning and Bounded Rationality: The El Farol Problem.” American Economic Review 84: 406–11.
———. 1999. “Complexity and the Economy.” Science 284 (5411): 107.
Axelrod, Robert. 1985. The Evolution of Cooperation. Basic Books.
Bednar, Jenna, and Scott E Page. 2000. “Can Game(s) Theory Explain Culture? The Emergence of Cultural Behavior Within Multiple Games.”
Beinhocker, Eric D. 2011. “Evolution as Computation: Integrating Self-Organization with Generalized Darwinism.” Journal of Institutional Economics 7 (September): 393–423.
Cartwright, Nancy. 1997. “Models: The Blueprints for Laws.” Philosophy of Science 64: -292-303.
Dayan, Peter, and Christopher JCH Watkins. n.d. “Reinforcement Learning.” In Encyclopedia of Cognitve Science.
Dijksterhuis, Ap, Maarten W Bos, Loran F Nordgren, and Rick B van Baaren. 2006. “On Making the Right Choice: The Deliberation-Without-Attention Effect.” Science, 2006.
Easley, David, and Jon Kleinberg. 2010. Networks, Crowds, and Markets: Reasoning about a Highly Connected World. New York: Cambridge University Press.
Epstein, Joshua M. 2001. “Learning to Be Thoughtless: Social Norms and Individual Computation.” Computational Economics 18: 9–24.
———. 2007. Generative Social Science: Studies in Agent-Based Computational Modeling. Princeton Studies in Complexity. Princeton University Press.
Festinger, Leon. 1957. A Theory of Cognitive Dissonance. Stanford University Press.
Frazier, Peter I, and Warren B Powell. 2010. “Paradoxes in Learning and the Marginal Value of Information.” Decision Analysis 7 (4): 378–403.
Gagen, Michael J, and Kae Nemoto. 2006. “Variational Optimization of Probability Measure Spaces Resolves the Chain Store Paradox.”
Gode, Dhananjay K, and Shyam Sunder. 1993. “Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality.” The Journal of Political Economy 101: 119–37.
———. 1997. “What Makes Markets Allocationally Efficient?” The Quarterly Journal of Economics 112: 603–30.
Graham-Tomasi, Theodore, Ford C Runge, and William F Hyde. 1986. “Foresight and Expectations in Models of Natural Resource Markets.” Land Economics 62: 234–49.
Griffiths, Thomas L, Nick Chater, Charles Kemp, Amy Perfors, and Joshua B Tenenbaum. 2010. “Probabilistic Models of Cognition: Exploring Representations and Inductive Biases.” Trends in Cognitive Sciences 14 (8): 357–64.
Hassett, Kevin A, and Gilbert E Metcalf. 1995. “Energy Tax Credits and Residential Conservation Investment: Evidence from Panel Data.” Journal of Public Economics 57: 201–17.
Hayek, Friedrich. 1979. Law, Legislation and Liberty. Vol. 3. London: Routledge And Kegan Paul Ltd.
Henrich, Joseph, Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, Herbert Gintis, Richard McElreath, et al. 2005. “’Economic Man’ in Cross-Cultural Perspective: Behavioral Experiments in 15 Small-Scale Societies.” Behavioral and Brain Sciences 28: 795.
Holland, John H, and John H Miller. 1991. “Artificial Adaptive Agents in Economic Theory.” The American Economic Review 81: 365–70.
Ioannidis, John P. 2005. “Why Most Published Research Findings Are False.” PLoS Medicine 2 (8): –124.
Jackson, Matthew O. 2009. “Social Structure, Segregation, and Economic Behavior.” Presented as the Nancy Schwartz Memorial Lecture, February.
Jin, Emily M, Michelle Girvan, and Mark E J Newman. 2001. “Structure of Growing Social Networks.” Physical Review E 64.
Kaelbling, L. P., M. L. Littman, and A. W. Moore. 1996. “Reinforcement Learning: A Survey.” Journal of Artifical Intelligence Research 4 (April).
Kahneman, Daniel. 2003. “Maps of Bounded Rationality: Psychology for Behavioral Economics.” The American Economic Review 93 (5): 1449–75.
Kahneman, Daniel, Paul Slovic, and Amos Tversky. 1982. “Judgement Under Uncertainty: Heuristics and Biases.”
Kirman, Alan. 2010. “Learning in Agent Based Models.”
Latek, Maciej, Robert Axtell, and Bogumil Kaminski. 2009. “Bounded Rationality via Recursion.” In, 457–64. Richland, SC: International Foundation for Autonomous Agents and Multiagent Systems.
Lo, Andrew W. 2004. “The Adaptive Markets Hypothesis.” The Journal of Portfolio Management 30: 15–29.
Lorenz, Jan. 2010. “Heterogeneous Bounds of Confidence: Meet, Discuss and Find Consensus!” Complexity 15 (4): 43–52.
Lucas, Deborah J, and Robert L McDonald. 1992. “Bank Financing and Investment Decisions with Asymmetric Information about Loan Quality.” The RAND Journal of Economics 23 (1): 86–105.
March, James G. 1978. “Bounded Rationality, Ambiguity, and the Engineering of Choice.” The Bell Journal of Economics 9 (2): 587–608.
March, James G, and Herbert A Simon. 1958. Organizations. New York: John Wiley and Sons.
Miller, George A. 1956. “The Magical Number Seven, Plus or Minus Two: Some Limits on Our Capacity for Processing Information.” The Psychological Review 63: 81.
Miller, Greg. 2006. “Tough Decision? Don’t Sweat It.” Science, 2006.
New Dimensions in Ecological Economics: Integrated Approaches to People and Nature. 2003. Edward Elgar.
North, Douglass C. 1994. “Economic Performance Through Time.” The American Economic Review 84: 359–68.
Olekalns, Nilss, and Peter Bardsley. 1996. “Rational Addiction to Caffeine: An Analysis of Coffee Consumption.” The Journal of Political Economy 104 (5): 1100–1104.
Oliva, Rogelio. 2003. “Model Calibration as a Testing Strategy for System Dynamics Models.” European Journal of Operational Research 151: 552–68.
Paich, Mark, and John D Sterman. 1993. “Boom, Bust, and Failures to Learn in Experimental Markets.” Management Science 39.
Peters, O., and M. Gell-Mann. 2016. “Evaluating Gambles Using Dynamics.” Chaos: An Interdisciplinary Journal of Nonlinear Science 26 (2): 023103.
Rauch, James E, and Alessandra Casella. 2001. “Networks and Markets: Concepts for Bridging Disciplines.” In Networks and Markets. Russell Sage Foundation Publications.
Repenning, Nelson P. 2002. “A Simulation-Based Approach to Understanding the Dynamics of Innovation Implementation.” Organization Science 13.
Ron, Dana, Yoram Singer, and Naftali Tishby. 1996. “The Power of Amnesia: Learning Probabilistic Automata with Variable Memory Length.” Machine Learning 25 (2): 117–49.
Rosewell, Bridget, and Paul Ormerod. 2004. “How Much Can Firms Know?” Computing in Economics and Finance 2004.
Rubinstein, Ariel. 1997. Modeling Bounded Rationality. The MIT Press.
Sah, Raaj K. 1991. “Fallibility in Human Organizations and Political Systems.” The Journal of Economic Perspectives 5: 67–88.
Sanders, James B. T., Tobias Galla, and Jonathan Shapiro. 2011. “Effects of Noise on Convergent Game Learning Dynamics.” September 22, 2011.
Sargent, Thomas J. 1994. Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures (Clarendon Paperbacks). Oxford University Press, USA.
Simon, Herbert A. 1990. “Alternative Visions of Rationality.” Rationality in Action: Contemporary Approaches, 189.
———. 1996. The Sciences of the Artificial. The MIT Press.
———. 1997. Administrative Behavior. Free Press.
Sunstein, Cass R, and Richard H Thaler. 2003. “Libertarian Paternalism Is Not An Oxymoron.” SSRN Electronic Journal.
Szpiro, George G. 1997. “The Emergence of Risk Aversion.” Complex. 2: 31–39.
Taylor, Samuel F, Naftali Tishby, and William Bialek. 2007. “Information and Fitness.” 2007.
Vanberg, Viktor J. 2004. “The Rationality Postulate in Economics: Its Ambiguity, Its Deficiency and Its Evolutionary Alternative.” Journal of Economic Methodology 11: 171–29.
Wilhite, Allen. 2001. “Bilateral Trade and ’Small-WorldNetworks.” Computational Economics 18: 49–64.
Yanagita, T, and T Onozaki. 2008. “Dynamics of a Market with Heterogeneous Learning Agents.” Journal of Economic Interaction and Coordination 3 (1): 107–18.
Young, H Peyton. 1996. “The Economics of Convention.” The Journal of Economic Perspectives 10 (2): 105–22.
———. 1998a. “Conventional Contracts.” The Review of Economic Studies 65 (4): 773–92.
———. 1998b. “Social Norms and Economic Welfare.” European Economic Review 42 (3): 821–30.
———. 2002. “The Diffusion of Innovations in Social Networks.”
———. 2005. “The Spread of Innovations Through Social Learning.”