Reasoning the Fast and Frugal Way: Models of Bounded Rationality1
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Behind Behavioral Economic Man: the Methods and Conflicts Between Two Perspectives
Behind Behavioral Economic Man: The Methods and Conflicts Between Two Perspectives Rafael Nunes Teixeira Mestre em Economia pela UnB Daniel Fernando de Souza Mestrando em Desenvolvimento Econômico pela UFPR Keywords: behavioral economics methods, Kahneman and Tversky, Gigerenzer and the ABC Research Group Behind Behavioral Economic Man: The Methods and Conflicts Between Two Perspectives Abstract: This work analyzes the methods of research in decision-making of behavioral economists Kahneman and Tversky (K&T) and one of their main critics, Gigerenzer and the ABC Group. Our aim was to explain differences between these two approaches of BE by examining the procedure used by them to search for the cognitive processes involved in choice. We identified similarities between K&T and the mainstream economics methods that may explain some of the differences with their critics’ approach. We conclude with a discussion of how advances in BE, such as Nudges and Choice Architecture may take advantage of complementarities in these perspectives. Keywords: behavioral economics methods, Kahneman and Tversky, Gigerenzer and the ABC Research Group 1 Introduction Human behavior is a fundamental component of economics and is usually described and interpreted by the Rational Choice Theory (RCT). From Bernoulli to Kreps, the RCT has assumed many different forms and undergone a lot of change in its long history. One key aspect (Sen 2002, 2009) of RCT is the use of logical constructions to describe man as a rational decision maker1. In this view, choices and preferences must be consistent and follow regularities (e.g. completeness and transitivity, α and β (Sen 1971)) and statistical norms (e.g. -
2 Cognitive Load Increases Risk Aversion 5 2.1 Introduction
Essays in Experimental and Neuroeconomics DISSERTATION zur Erlangung des akademischen Grades Dr. rer. pol. im Fach Volkswirtschaftslehre eingereicht an der Wirtschaftswissenschaftlichen Fakultät der Humboldt-Universität zu Berlin von Diplom-Volkswirt Holger Gerhardt geboren am 17. Januar 1978 in Arnsberg Präsident der Humboldt-Universität zu Berlin: Prof. Dr. Jan-Hendrik Olbertz Dekan der Wirtschaftswissenschaftlichen Fakultät: Prof. Oliver Günther, Ph. D. Gutachter: 1. Prof. Lutz Weinke, Ph. D. 2. Prof. Dr. Hauke R. Heekeren eingereicht am: 9. Mai 2011 Tag des Kolloquiums: 20. Juni 2011 Contents 1 Introduction 1 Bibliography . 3 2 Cognitive load increases risk aversion 5 2.1 Introduction . 5 2.2 Related literature . 7 2.2.1 Introductory remarks . 7 2.2.2 Overview of dual-system and “dual-self” approaches . 7 2.2.3 Subjective expected-utility theory as a unitary-process model of decision making under risk . 10 2.2.4 Dual-process approaches to decision making under risk . 11 2.2.5 Empirical evidence on dual processes in decision making under risk . 12 2.3 Experimental design . 17 2.3.1 Introduction: Advantages of our design over alternative designs . 17 2.3.2 Trial setup . 18 2.3.3 Additional measures of individual differences . 24 2.4 Results . 24 2.4.1 Introductory remarks . 24 2.4.2 Were the tasks adequate? . 25 2.4.3 How did subjects allocate attention to the two simultane- ous tasks? . 25 2.4.4 Preference reversal?—How often did subjects choose the riskier lottery? . 26 2.4.5 Structural regressions: the influence of additional cognitive load on subjects’ degree of relative risk aversion . -
Heuristics and Biases the Psychology of Intuitive Judgment. In
P1: FYX/FYX P2: FYX/UKS QC: FCH/UKS T1: FCH CB419-Gilovich CB419-Gilovich-FM May 30, 2002 12:3 HEURISTICS AND BIASES The Psychology of Intuitive Judgment Edited by THOMAS GILOVICH Cornell University DALE GRIFFIN Stanford University DANIEL KAHNEMAN Princeton University iii P1: FYX/FYX P2: FYX/UKS QC: FCH/UKS T1: FCH CB419-Gilovich CB419-Gilovich-FM May 30, 2002 12:3 published by the press syndicate of the university of cambridge The Pitt Building, Trumpington Street, Cambridge, United Kingdom cambridge university press The Edinburgh Building, Cambridge CB2 2RU, UK 40 West 20th Street, New York, NY 10011-4211, USA 477 Williamstown, Port Melbourne, VIC 3207, Australia Ruiz de Alarcon´ 13, 28014, Madrid, Spain Dock House, The Waterfront, Cape Town 8001, South Africa http://www.cambridge.org C Cambridge University Press 2002 This book is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2002 Printed in the United States of America Typeface Palatino 9.75/12.5 pt. System LATEX2ε [TB] A catalog record for this book is available from the British Library. Library of Congress Cataloging in Publication data Heuristics and biases : the psychology of intuitive judgment / edited by Thomas Gilovich, Dale Griffin, Daniel Kahneman. p. cm. Includes bibliographical references and index. ISBN 0-521-79260-6 – ISBN 0-521-79679-2 (pbk.) 1. Judgment. 2. Reasoning (Psychology) 3. Critical thinking. I. Gilovich, Thomas. II. Griffin, Dale III. Kahneman, Daniel, 1934– BF447 .H48 2002 153.4 – dc21 2001037860 ISBN 0 521 79260 6 hardback ISBN 0 521 79679 2 paperback iv P1: FYX/FYX P2: FYX/UKS QC: FCH/UKS T1: FCH CB419-Gilovich CB419-Gilovich-FM May 30, 2002 12:3 Contents List of Contributors page xi Preface xv Introduction – Heuristics and Biases: Then and Now 1 Thomas Gilovich and Dale Griffin PART ONE. -
Physical Laws and Human Behavior: a Three-Tier Framework
Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale Cowles Foundation Discussion Papers Cowles Foundation 2-1-2019 Physical Laws and Human Behavior: A Three-Tier Framework Shabnam Mousavi Shyam Sunder Follow this and additional works at: https://elischolar.library.yale.edu/cowles-discussion-paper-series Part of the Economics Commons Recommended Citation Mousavi, Shabnam and Sunder, Shyam, "Physical Laws and Human Behavior: A Three-Tier Framework" (2019). Cowles Foundation Discussion Papers. 84. https://elischolar.library.yale.edu/cowles-discussion-paper-series/84 This Discussion Paper is brought to you for free and open access by the Cowles Foundation at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in Cowles Foundation Discussion Papers by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact [email protected]. PHYSICAL LAWS AND HUMAN BEHAVIOR: A THREE-TIER FRAMEWORK By Shabnam Mousavi and Shyam Sunder February 2019 COWLES FOUNDATION DISCUSSION PAPER NO. 2173 COWLES FOUNDATION FOR RESEARCH IN ECONOMICS YALE UNIVERSITY Box 208281 New Haven, Connecticut 06520-8281 http://cowles.yale.edu/ Physical Laws and Human Behavior: A Three-Tier Framework Shabnam Mousavi1 and Shyam Sunder2 1 Max Planck Institute for Human Development ([email protected]) 2 Yale University ([email protected]) This version: 21 February, 2019 Abstract Social sciences start by looking at the social-psychological attributes of humans to model and explain their observed behavior. However, we suggest starting the study of observed human behavior with the universal laws of physics, e.g., the principle of minimum action. -
Christoph Engel Preprints of the Max Planck Institute for Research on Collective Goods Bonn 2004/4
A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Engel, Christoph Working Paper Social dilemmas, revisited from a heuristics perspective Preprints of the Max Planck Institute for Research on Collective Goods, No. 2004/4 Provided in Cooperation with: Max Planck Institute for Research on Collective Goods Suggested Citation: Engel, Christoph (2004) : Social dilemmas, revisited from a heuristics perspective, Preprints of the Max Planck Institute for Research on Collective Goods, No. 2004/4, Max Planck Institute for Research on Collective Goods, Bonn This Version is available at: http://hdl.handle.net/10419/85119 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen -
THINKING with MENTAL MODELS 63 and Implementation
Thinking with CHAPTER 3 mental models When we think, we generally use concepts that we it would be impossible for people to make most deci- have not invented ourselves but that reflect the shared sions in daily life. And without shared mental models, understandings of our community. We tend not to it would be impossible in many cases for people to question views when they reflect an outlook on the develop institutions, solve collective action problems, world that is shared by everyone around us. An impor- feel a sense of belonging and solidarity, or even under- tant example for development pertains to how people stand one another. Although mental models are often view the need to provide cognitive stimulation to shared and arise, in part, from human sociality (chapter children. In many societies, parents take for granted 2), they differ from social norms, which were discussed that their role is to love their children and keep them in the preceding chapter. Mental models, which need safe and healthy, but they do not view young children not be enforced by direct social pressure, often capture as needing extensive cognitive and linguistic stimu- broad ideas about how the world works and one’s place lation. This view is an example of a “mental model.”1 in it. In contrast, social norms tend to focus on particu- In some societies, there are even norms against verbal lar behaviors and to be socially enforced. There is immense variation in mental models across societies, including different perceptions of Mental models help people make sense of the way the world “works.” Individuals can adapt their mental models, updating them when they learn that the world—to interpret their environment outcomes are inconsistent with expectations. -
Libertarian Paternalism in Policy Making: Empirical, Methodological and Philosophical Problems
Institute for Research in Economic and Fiscal issues IREF Working Paper Series Libertarian paternalism in policy making: empirical, methodological and philosophical problems Yulie Foka-Kavalieraki Niki Sotiriou ORKING APER O IREF W P N . 202006 CTOBER O 2020 N NGLISH EN IREFEUROPE ORG I E : . N RENCH FR IREFEUROPE ORG I F : . N ERMAN DE IREFEUROPE ORG I G : . Institute for Research in Economic and Fiscal issues Libertarian Paternalism in Policy Making Empirical, Methodological and Philosophical Problems Yulie Foka-Kavalieraki & Niki Sotiriou1 University of Athens Nudge theory, according to its founders Richard Thaler and Cass Sunstein, is a kind of libertarian paternalism that helps people towards making choices that can improve their health, wealth and lives. The theory relies on the insights of the Heuristics &Bi- ases research program, and the assumption that people are systematically irrational. Nudge theory has been used in several cases by both government and private admin- istrations, in an attempt to guide individuals towards making preferable decisions, always on the basis that these decisions would be better for them. The aim of this paper is to review the relative literature of the theory’s applications in both the private and the public sector, and also examine the effectiveness of its applications. Specifi- cally, we examine examples where nudge theory has been broadly used as a policy making tool, such as in the UK, as well as in other countries around the globe. In ad- dition to that, we present the implementations of the theory in the private sector and in particular, we discuss the concept of nudge management, that is now applied by many big organizations. -
The Representation of Judgment Heuristics and the Generality Problem
The Representation of Judgment Heuristics and the Generality Problem Carole J. Lee ([email protected]) Department of Philosophy, 50 College Street South Hadley, MA 01033 USA Abstract that are inappropriately characterized and should not be used in the epistemic evaluation of belief. Second, In his debates with Daniel Kahneman and Amos Tversky, Gerd Gigerenzer puts forward a stricter standard for the Gigerenzer’s critiques of Daniel Kahneman and Amos proper representation of judgment heuristics. I argue that Tversky’s judgment heuristics help to recast the generality Gigerenzer’s stricter standard contributes to naturalized problem in naturalized epistemology in constructive ways. epistemology in two ways. First, Gigerenzer’s standard can be In the first part of this paper, I will argue that naturalized used to winnow away cognitive processes that are epistemologists and cognitive psychologists like Gigerenzer inappropriately characterized and should not be used in the have explanatory goals and conundrums in common: in epistemic evaluation of belief. Second, Gigerenzer’s critique helps to recast the generality problem in naturalized particular, both seek to explain the production and epistemic epistemology and cognitive psychology as the methodological status of beliefs by referring to the reliable cognitive problem of identifying criteria for the appropriate processes from which they arise; and both face the specification and characterization of cognitive processes in generality problem in trying to do so. Gigerenzer helps to psychological explanations. I conclude that naturalized address the generality problem by proposing a stricter epistemologists seeking to address the generality problem standard for the characterization of cognitive processes. should turn their focus to methodological questions about the This stricter standard disqualifies some judgment heuristics proper characterization of cognitive processes for the purposes of psychological explanation. -
The Natures of Universal Moralities, 75 Brook
Brooklyn Law Review Volume 75 Issue 2 SYMPOSIUM: Article 4 Is Morality Universal, and Should the Law Care? 2009 The aN tures of Universal Moralities Bailey Kuklin Follow this and additional works at: https://brooklynworks.brooklaw.edu/blr Recommended Citation Bailey Kuklin, The Natures of Universal Moralities, 75 Brook. L. Rev. (2009). Available at: https://brooklynworks.brooklaw.edu/blr/vol75/iss2/4 This Article is brought to you for free and open access by the Law Journals at BrooklynWorks. It has been accepted for inclusion in Brooklyn Law Review by an authorized editor of BrooklynWorks. The Natures of Universal Moralities Bailey Kuklin† One of the abiding lessons from postmodernism is that reason does not go all the way down.1 In the context of this symposium, one cannot deductively derive a universal morality from incontestible moral primitives,2 or practical reason alone.3 Instead, even reasoned moral systems must ultimately be grounded on intuition,4 a sense of justice. The question then † Professor of Law, Brooklyn Law School. I wish to thank the presenters and participants of the Brooklyn Law School Symposium entitled “Is Morality Universal, and Should the Law Care?” and those at the Tenth SEAL Scholarship Conference. Further thanks go to Brooklyn Law School for supporting this project with a summer research stipend. 1 “Simplifying to the extreme, I define postmodern as incredulity toward metanarratives.” JEAN-FRANCOIS LYOTARD, THE POSTMODERN CONDITION: A REPORT ON KNOWLEDGE xxiv (Geoff Bennington & Brian Massumi trans., 1984). “If modernity is viewed with Weberian optimism as the project of rationalisation of the life-world, an era of material progress, social emancipation and scientific innovation, the postmodern is derided as chaotic, catastrophic, nihilistic, the end of good order.” COSTAS DOUZINAS ET AL., POSTMODERN JURISPRUDENCE 16 (1991). -
An Interview with Gerd Gigerenzer
Ecological rationality and citizenship education: an interview with Gerd Gigerenzer Danilo R. StreckI Abstract The subject of this interview is the research on ecological rationality carried out at the Max-Planck Instuitute for Human Development, in Berlin, and its implications for education, especially for citizenship education. The studies on ecological rationality focus on the processes of decision making in a world in which human activity happens in a context of uncertainties, where a complete evaluation of factors is practically impossible. The assumption of the research is that cognitive processes cannot be dissociated from social and cultural realities, and that therefore the identification of the heuristics used in making decisions can be an important instrument for the formation of autonomous thinking. Of special interest from the pedagogical perspective is promoting the development of the capacity to understand and deal with the limits and possibilities of the scientific logic on which educational processes are largely based, and the development of forms of knowing that are as much or more determinant than that one. Gigerenzer emphasizes the role of collective and interdisciplinary work to promote creativity in research and teaching, as well as to make decisions in daily life. Keywords Ecological rationality — Citizenship — Heuristics — Uncertainty. I- Universidade do Vale do Rio dos Sinos, São Leopoldo, RS, Brasil. Contact: [email protected] Educ. Pesqui., São Paulo, v. 40, n. 3, p. 829-842, jul./set. 2014. http://dx.doi.org/10.1590/S1517-97022014400300201 829 Racionalidade ecológica e formação de cidadania: entrevista com Gerd Gigerenzer Danilo R. StreckI Resumo A entrevista tem por tema as pesquisas sobre racionalidade ecológica e suas implicações para a educação, especialmente para a formação da cidadania, pesquisas essas desenvolvidas no Max- Planck Institute for Human Development, em Berlim. -
Bounded Rationality: Models of Fast and Frugal Inference
Published in: Swiss Journal of Economics and Statistics, 133 (2/2), 1997, 201–218. © 1997 Peter Lang, 0303-9692. Bounded Rationality: Models of Fast and Frugal Inference Gerd Gigerenzer1 Max Planck Institute for Psychological Research, Munich, Germany Humans and other animals need to make inferences about their environment under constraints of limited time, knowledge, and computational capacities. However, most theories of inductive infer- ences model the human mind as a supercomputer like a Laplacean demon, equipped with unlim- ited time, knowledge, and computational capacities. In this article I review models of fast and frugal inference, that is, satisfi cing strategies whose task is to infer unknown states of the world (without relying on computationaly expensive procedures such as multiple regression). Fast and frugal inference is a form of bounded rationality (Simon, 1982). I begin by explaining what bounded rationality in human inference is not. 1. Bounded Rationality is Not Irrationality In his chapter in John Kagel and Alvin Roth’s Handbook of Experimental Economics (1995), Colin Camerer explains that “most research on individual decision making has taken normative theo- ries of judgment and choice (typically probability rules and utility theories) as null hypotheses about behavior,” and has labeled systematic deviations from these norms “cognitive illusions” (p. 588). Camerer continues, “The most fruitful, popular alternative theories spring from the idea that limits on computational ability force people to use simplifi ed procedures or ‘heuristics’ that cause systematic mistakes (biases) in problem solving, judgment, and choice. The roots of this approach are in Simon’s (1955) distinction between substantive rationality (the result of norma- tive maximizing models) and procedural rationality.” (p. -
Laplace's Theories of Cognitive Illusions, Heuristics, and Biases∗ 1
Laplace's theories of cognitive illusions, heuristics, and biases∗ Joshua B. Millery Andrew Gelmanz 25 Mar 2018 For latest version, click here: https://ssrn.com/abstract=3149224 Abstract In his book from the early 1800s, Essai Philosophique sur les Probabilit´es, the mathematician Pierre-Simon de Laplace anticipated many ideas developed in the 1970s in cognitive psychology and behavioral economics, explaining human tendencies to deviate from norms of rationality in the presence of probability and uncertainty. A look at Laplace's theories and reasoning is striking, both in how modern they seem and in how much progress he made without the benefit of systematic experimentation. We argue that this work points to these theories being more fundamental and less contingent on recent experimental findings than we might have thought. 1. Heuristics and biases, two hundred years ago One sees in this essay that the theory of probabilities is basically only common sense reduced to a calculus. It makes one estimate accurately what right-minded people feel by a sort of instinct, often without being able to give a reason for it. (Laplace, 1825, p. 124)1 A century and a half before the papers of Kahneman and Tversky that kickstarted the \heuris- tics and biases" approach to the psychology of judgment and decision making and the rise of behavioral economics, the celebrated physicist, mathematician, and statistician Pierre-Simon de Laplace wrote a chapter in his Essai Philosophique sur les Probabilit´es that anticipated many of these ideas which have been so influential, from psychology and economics to business and sports.2 ∗We thank Jonathon Baron, Gerd Gigerenzer, Daniel Goldstein, Alex Imas, Daniel Kahneman, and Stephen Stigler for helpful comments and discussions, and the Defense Advanced Research Projects Agency for partial support of this work through grant D17AC00001.