Analogies and Theories: The Role of Simplicity and the Emergence of Norms

Gabrielle Gayer and Itzhak Gilboa

No 275780, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: We consider the dynamics of reasoning by general rules (theories) and by specific cases (analogies). When an agent faces an exogenous process, we show that, under mild conditions, if reality happens to be simple, the agent will converge to adopt a theory and discard analogical thinking. If, however, reality is complex, the agent may rely on analogies more than on theories. By contrast, when the agent is a player in a large population coordination game, and the process is generated by all players' predictions, convergence to a theory is much more likely. This may explain how a large population of players selects an equilibrium in such a game, and how social norms emerge. Mixed cases, involving noisy endogenous processes are likely to give rise to complex dynamics of reasoning, switching between theories and analogies.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 30
Date: 2012-09
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Analogies and theories: The role of simplicity and the emergence of norms (2014)
Working Paper: Analogies and Theories: The Role of Simplicity and the Emergence of Norms (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275780

DOI: 10.22004/ag.econ.275780

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