Bounded rationality at large
It is as if we knew what we were doing
January 13, 2012 — January 15, 2023
economics
mind
sociology
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).
1 References
Akerlof, and Shiller. 2015. Phishing for Phools: The Economics of Manipulation and Deception.
Bright. 2022. “Neo-Rationalism.”
Camara. 2021. “Computationally Tractable Choice.”
Easley, and Kleinberg. 2010. Networks, Crowds, and Markets: Reasoning about a Highly Connected World.
Epstein. 2001. “Learning to Be Thoughtless: Social Norms and Individual Computation.” Computational Economics.
———. 2007. Generative Social Science: Studies in Agent-Based Computational Modeling. Princeton Studies in Complexity.
Farrell, Mercier, and Schwartzberg. 2022. “Analytical Democratic Theory: A Microfoundational Approach.” American Political Science Review.
Gagen, and Nemoto. 2006. “Variational Optimization of Probability Measure Spaces Resolves the Chain Store Paradox.”
Gode, and Sunder. 1993. “Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality.” The Journal of Political Economy.
———. 1997. “What Makes Markets Allocationally Efficient?” The Quarterly Journal of Economics.
Graham-Tomasi, Runge, and Hyde. 1986. “Foresight and Expectations in Models of Natural Resource Markets.” Land Economics.
Henrich, Boyd, Bowles, et al. 2005. “‘Economic Man’ in Cross-Cultural Perspective: Behavioral Experiments in 15 Small-Scale Societies.” Behavioral and Brain Sciences.
Holland, and Miller. 1991. “Artificial Adaptive Agents in Economic Theory.” The American Economic Review.
Jackson. 2009. “Social Structure, Segregation, and Economic Behavior.” Presented as the Nancy Schwartz Memorial Lecture.
Kirman. 2010. “Learning in Agent Based Models.”
Latek, Axtell, and Kaminski. 2009. “Bounded Rationality via Recursion.” In.
Lo. 2004. “The Adaptive Markets Hypothesis.” The Journal of Portfolio Management.
Lucas, and McDonald. 1992. “Bank Financing and Investment Decisions with Asymmetric Information about Loan Quality.” The RAND Journal of Economics.
Maćkowiak, Matějka, and Wiederholt. 2023. “Rational Inattention: A Review.” Journal of Economic Literature.
Molavi. 2022. “Simple Models and Biased Forecasts.” arXiv:2202.06921 [Econ].
New Dimensions in Ecological Economics: Integrated Approaches to People and Nature. 2003.
North. 1994. “Economic Performance Through Time.” The American Economic Review.
Paich, and Sterman. 1993. “Boom, Bust, and Failures to Learn in Experimental Markets.” Management Science.
Rauch, and Casella. 2001. “Networks and Markets: Concepts for Bridging Disciplines.” In Networks and Markets.
Rosewell, and Ormerod. 2004. “How Much Can Firms Know?” Computing in Economics and Finance 2004.
Rubinstein. 1997. Modeling Bounded Rationality.
Sah. 1991. “Fallibility in Human Organizations and Political Systems.” The Journal of Economic Perspectives.
Sargent. 1994. Bounded Rationality in Macroeconomics: The Arne Ryde Memorial Lectures (Clarendon Paperbacks).
Simon. 1996. The Sciences of the Artificial.
Vanberg. 2004. “The Rationality Postulate in Economics: Its Ambiguity, Its Deficiency and Its Evolutionary Alternative.” Journal of Economic Methodology.
Wilhite. 2001. “Bilateral Trade and ‘Small-World’ Networks.” Computational Economics.
Yanagita, and Onozaki. 2008. “Dynamics of a Market with Heterogeneous Learning Agents.” Journal of Economic Interaction and Coordination.
Young. 1996. “The Economics of Convention.” The Journal of Economic Perspectives.
———. 2005. “The Spread of Innovations Through Social Learning.”