EconPapers    
Economics at your fingertips  
 

From Bounded Rationality to Behavioral Economics

Massimo Egidi ()

Experimental from EconWPA

Abstract: The paper provides an brief overview of the “state of the art” in the theory of rational decision making since the 1950’s, and focuses specially on the evolutionary justification of rationality. It is claimed that this justification, and more generally the economic methodology inherited from the Chicago school, becomes untenable once taking into account Kauffman’s Nk model, showing that if evolution it is based on trial-and-error search process, it leads generally to sub- optimal stable solutions: the ‘as if’ justification of perfect rationality proves therefore to be a fallacious metaphor. The normative interpretation of decision-making theory is therefore questioned, and the two challenging views against this approach , Simon’s bounded rationality and Allais’ criticism to expected utility theory are discussed. On this ground it is shown that the cognitive characteristics of choice processes are becoming more and more important for explanation of economic behavior and of deviations from rationality. In particular, according to Kahneman’s Nobel Lecture, it is suggested that the distinction between two types of cognitive processes – the effortful process of deliberate reasoning on the one hand, and the automatic process of unconscious intuition on the other – can provide a different map with which to explain a broad class of deviations from pure ‘olympian’ rationality. This view requires re-establishing and revising connections between psychology and economics: an on-going challenge against the normative approach to economic methodology.

Keywords: Bounded Rationality; Behavioral Economics; Evolution; As If (search for similar items in EconPapers)
JEL-codes: C9 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-hpe
Date: 2005-07-08
Note: Type of Document - pdf; pages: 22
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://econwpa.repec.org/eps/exp/papers/0507/0507002.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpex:0507002

Access Statistics for this paper

More papers in Experimental from EconWPA
Series data maintained by EconWPA ().

 
Page updated 2017-12-11
Handle: RePEc:wpa:wuwpex:0507002