How can institutions construct good decisions out of the aggregate ignorance, laziness, short-sightedness, chaos and occasional information that we pump in to them?
A flagship question is about how the market does so, finding prices (maybe) efficiently despite the boundedly rational dynamics of human decisions. 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 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.)
TBC
- Henry Farrell, in Skepticism and human reason, argues “Even if human beings are bad at (some forms) of individual reasoning, they may be able to reason quite well collectively.” A criticism of Bright (2022) via Farrell, Mercier, and Schwartzberg (2022).
References
Akerlof, George A., and Robert J. Shiller. 2015. Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press.
Bright, Liam Kofi. 2022. “Neo-Rationalism.”
Camara, Modibo K. 2021. “Computationally Tractable Choice,” 80.
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.
Farrell, Henry, Hugo Mercier, and Melissa Schwartzberg. 2022. “Analytical Democratic Theory: A Microfoundational Approach.” American Political Science Review, August, 1–6.
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.
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.
Jackson, Matthew O. 2009. “Social Structure, Segregation, and Economic Behavior.” Presented as the Nancy Schwartz Memorial Lecture, February.
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.
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.
Maćkowiak, Bartosz, Filip Matějka, and Mirko Wiederholt. 2023. “Rational Inattention: A Review.” Journal of Economic Literature 61 (1): 226–73.
Molavi, Pooya. 2022. “Simple Models and Biased Forecasts.” arXiv:2202.06921 [Econ], February.
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.
Paich, Mark, and John D Sterman. 1993. “Boom, Bust, and Failures to Learn in Experimental Markets.” Management Science 39.
Rauch, James E, and Alessandra Casella. 2001. “Networks and Markets: Concepts for Bridging Disciplines.” In Networks and Markets. Russell Sage Foundation Publications.
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.
Sargent, Thomas J. 1994. Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures (Clarendon Paperbacks). Oxford University Press, USA.
Simon, Herbert A. 1996. The Sciences of the Artificial. The MIT Press.
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-World’ Networks.” 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.
———. 2005. “The Spread of Innovations Through Social Learning.”
No comments yet. Why not leave one?