BOUNDED RATIONALITY AND PERFECT RATIONALITY: PSYCHOLOGY INTO ECONOMICS
Abstract
Mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally.
This contribution tries to highlight some well-known limits of the classical theory of rational choice and compare this theory of choice with bounded rationality, which is a different notion of rationality, and with an approach that seeks to combine economics and psychology, based on experimental data, which established itself as behavioral economics.
The work also examines part of the literature of behavioral finance which has given important contributions in explaining the behavior and the anomalies of financial markets. A final reference is dedicated to neuroeconomics that is gaining more and more ground in the analysis of economic behavior.
References
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[25] Rubinstein A. 1998. Modeling Bounded Rationality. Cambridge: MIT Press.
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[27] Schilirò D. 2011. Decisioni e razionalità in economia, MPRA Paper 29477, University Library of Munich, Germany.
[28] Schilirò D. 2012. Bounded rationality: psychology, economics and the financial crisis, MPRA Paper 40280, University Library of Munich, Germany.
[29] Schilirò D., and Graziano M. 2011. Scelte e razionalità nei modelli economici: un'analisi multidisciplinare, MPRA Paper 31910, University Library of Munich, Germany.
[30] Simon H.A. 1955. A behavioral model of rational choice, The Quarterly Journal of Economics, 69(1): 99-118, February.
[31] Simon H.A. 1956. Rational choice and the structure of the environment, Psychological Review, 63 (2): 129 – 138, March.
[32] Simon H.A., 1957. Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting, New York: John Wiley and Sons.
[33] Simon H.A., 1959. Theories of decision making in economics and behavioral science, American Economic Review, 49 (3), June, pp. 253-283.
[34] Simon H.A., 1972. Theories of bounded rationality, in McGuire C.B., Radner R. (eds.), Decision and Organization, Amsterdam, North Holland Pub. Co.
[35] Simon H.A., 1976. From substantive to procedural rationality, in Latsis S.J. (ed.), Method and Appraisal in Economics, Cambridge: Cambridge University Press, pp. 129-148.
[36] Simon H.A. 1979. Rational decision making in business organizations [Nobel Memorial Lecture], American Economic Review 69(4): 493-513, September.
[37] Simon H.A. 1991. Bounded rationality and organizational learning, Organization Science 2 (1): 125–134.
[38] Simon H.A. 1997. An Empirically Based Microeconomics, Cambridge, Cambridge University press.
[39] Thaler R.H. 1980. Towards a positive theory of consumer choice. Journal of Economic Behavior and Organization 1: 39-60.
[39] Thaler R. H., and Shefrin H. 1981. An economic theory of self-control. Journal of Political Economy 89(2): 392–406.
[40] Todd P.M., Gigerenzer G. 2003. Bounding rationality to the world, Journal of Economic Psychology 24: 143-165.
[41] Tversky A., and Kahneman D. 1974. Judgment under uncertainty: heuristics and biases, Science 185: 1124-31, September.
[42] Tversky A., Kahneman D., 1986. Rational choice and the framing of decisions, Journal of Business 59(4): S251-S278, October.
[43] Von Neumann J., and Morgenstern O. 1944. Theory of Games and Economic Behaviour, Princeton, Princeton University Press.
[2] Arrow K.J. 1971. Essay in the Theory of Risk - Bearing, Amsterdam, North Holland Pub. Co.
[3] Barros G. 2010. Herbert A. Simon and the concept of rationality: boundaries and procedures, Brazilian Journal of Political Economy 30(3): 445-472, July - September.
[4] Brocas I., and Carrillo J.D. 2010. Neuroeconomics theory, using neuroscience to understand bounds of rationality, VoxEU.org, March.
[5] Camerer C.L., and Loewenstein G. 2003. Behavioral Economics: Past, Present, Future, in Camerer C.L., Loewenstein G., Rabin M. (eds.), Advances in Behavioral Economics, Princeton, Princeton University Press, 2003: 3-51.
[6] Camerer C.L., and Loewenstein G., Prelec D. 2005. Neuroeconomics: how neuroscience can inform economics, Journal of Economic Literature, XLIII: 9-64.
[7] Constantinescu M. 2010. Neuroeconomics and decision making process, Theoretical and Practical Research in Economic Fields 1(2): 210-218.
[8] De Bondt, W.F., and Thaler R. 1985. Does the stock market overreact?, The Journal of Finance 40(3): 793-805.
[9] Ellsberg, D., 1961. Risk, ambiguity, and the Savage axioms, Quarterly Journal of Economics 75(4): 643–669.
[10] Fama E.F. 1970. Efficient Capital Markets: a Review of Theory and Empirical Work. Journal of Finance 35: 383-417, May.
[11] Fama E.F. 1991. Efficient Capital Markets: II. Journal of Finance 46(5): 1575-1617.
[12] Friedman M., and Savage L. 1948. Utility analysis of choices involving risk, Journal of Political Economy 56 (4): 279-304.
[13] Genesove D., and Mayer C. 2001. Loss aversion and seller behavior: Evidence from the housing market, The Quarterly Journal of Economics 116 (4): 1233-1260.
[14] Gigerenzer, G., and Goldstein D.G. 1996. Reasoning the fast and frugal way: models of bounded rationality, Psychological Review 103 (4): 650–669.
[15] Graziano M., and Schilirò D. 2011. Rationality and choices in economics: behavioral and evolutionary approaches, Theoretical and Practical Research in Economic Fields 2(2): 183-196.
[16] Kahneman D. 2003. Maps of bounded rationality: psychology for behavioral economics. The American Economic Review 93(5): 1449–75.
[17] Kahneman D., and Thaler R.H. 2006. Anomalies: Utility Maximization and Experienced Utility, Journal of Economic Perspectives 20(1): 221-234.
[18] Kahneman D., and Tversky A. 1979. Prospect theory. An analysis of decision under risk, Econometrica 47(2): 263-292.
[19] Kahneman D., and Tversky A. 1984. Choices, values and frames, American Psychologist 39: 341-350.
[20] Kahneman D., Knetsch J.L., and Thaler R.H. 1990. Experimental tests of the endowment effect and the Coase theorem, Journal of Politica Economy 98(6): 1325-1348.
[21] Montesano A. 2005. La nozione di razionalità in economia, Rivista italiana degli economisti, n.1.
[22] Novarese M., Castellani M., and Di Giovinazzo V. 2009. Procedural rationality and happiness, MPRA Paper 18290, October, University Library of Munich, Germany.
[23] Rabin M. 1998. Psychology and economics, Journal of Economic Literature 36(1): 11-46.
[24] Rabin M. 2002. A perspective on psychology and economics, European Economic Review, 46(4-5): 657-685.
[25] Rubinstein A. 1998. Modeling Bounded Rationality. Cambridge: MIT Press.
[26] Schilirò, D. 2005. Economia della conoscenza, istituzioni e sviluppo economico, MPRA Paper 31492, University Library of Munich, Germany.
[27] Schilirò D. 2011. Decisioni e razionalità in economia, MPRA Paper 29477, University Library of Munich, Germany.
[28] Schilirò D. 2012. Bounded rationality: psychology, economics and the financial crisis, MPRA Paper 40280, University Library of Munich, Germany.
[29] Schilirò D., and Graziano M. 2011. Scelte e razionalità nei modelli economici: un'analisi multidisciplinare, MPRA Paper 31910, University Library of Munich, Germany.
[30] Simon H.A. 1955. A behavioral model of rational choice, The Quarterly Journal of Economics, 69(1): 99-118, February.
[31] Simon H.A. 1956. Rational choice and the structure of the environment, Psychological Review, 63 (2): 129 – 138, March.
[32] Simon H.A., 1957. Models of Man, Social and Rational: Mathematical Essays on Rational Human Behavior in a Social Setting, New York: John Wiley and Sons.
[33] Simon H.A., 1959. Theories of decision making in economics and behavioral science, American Economic Review, 49 (3), June, pp. 253-283.
[34] Simon H.A., 1972. Theories of bounded rationality, in McGuire C.B., Radner R. (eds.), Decision and Organization, Amsterdam, North Holland Pub. Co.
[35] Simon H.A., 1976. From substantive to procedural rationality, in Latsis S.J. (ed.), Method and Appraisal in Economics, Cambridge: Cambridge University Press, pp. 129-148.
[36] Simon H.A. 1979. Rational decision making in business organizations [Nobel Memorial Lecture], American Economic Review 69(4): 493-513, September.
[37] Simon H.A. 1991. Bounded rationality and organizational learning, Organization Science 2 (1): 125–134.
[38] Simon H.A. 1997. An Empirically Based Microeconomics, Cambridge, Cambridge University press.
[39] Thaler R.H. 1980. Towards a positive theory of consumer choice. Journal of Economic Behavior and Organization 1: 39-60.
[39] Thaler R. H., and Shefrin H. 1981. An economic theory of self-control. Journal of Political Economy 89(2): 392–406.
[40] Todd P.M., Gigerenzer G. 2003. Bounding rationality to the world, Journal of Economic Psychology 24: 143-165.
[41] Tversky A., and Kahneman D. 1974. Judgment under uncertainty: heuristics and biases, Science 185: 1124-31, September.
[42] Tversky A., Kahneman D., 1986. Rational choice and the framing of decisions, Journal of Business 59(4): S251-S278, October.
[43] Von Neumann J., and Morgenstern O. 1944. Theory of Games and Economic Behaviour, Princeton, Princeton University Press.
Published
2012-12-31
How to Cite
SCHILIRÒ, Daniele.
BOUNDED RATIONALITY AND PERFECT RATIONALITY: PSYCHOLOGY INTO ECONOMICS.
Theoretical and Practical Research in Economic Fields, [S.l.], v. 3, n. 2, p. 99-108, dec. 2012.
ISSN 2068-7710.
Available at: <https://journals.aserspublishing.eu/tpref/article/view/1171>. Date accessed: 21 dec. 2024.
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