Nominalist Heuristics and Economic Theory

Robin Pope, Reinhard Selten and Sebastian Kube

No 17/2009, Bonn Econ Discussion Papers from University of Bonn, Bonn Graduate School of Economics (BGSE)

Abstract: This paper introduces a new theoretic entity, a nominalist heuristic, defined as a focus on prominent numbers, indices or ratios. Abstractions used in the evaluation stage of decision making typically involve nominalist heuristics that are incompatible with expected utility theory which excludes the evaluation stage, and are also incompatible with prospect theory which assumes that, while the evaluation procedure can involve systematic mistakes, the overall decision situation is nevertheless sufficiently simple: 1) for economists and psychologists to identify what is a mistake, and 2) to be compatible with maximisation. But in the typical complex situation giving rise to nominalist heuristics neither 1) nor 2) hold, and therefore what is required is a fundamentally different class of models that allow for the progressive anticipated changes in knowledge ahead faced under risk and uncertainty, namely models under the umbrella of SKAT, the Stages of Knowledge Ahead Theory. A sequel paper. Pope et al 2009b, shows field and laboratory evidence of heuristics in the form of prominent numbers entering exchange rate determination.

Keywords: nominalism; money illusion; heuristic; unpredictability; experiment; SKAT the Stages of Knowledge Ahead Theory; prominent numbers; prominent indices; prominent ratios; equality; historical benchmarks; complexity; decision costs; evaluation (search for similar items in EconPapers)
JEL-codes: D80 D81 F31 F33 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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