Models Of Bounded Rationality

The notion of bounded rationality was initiated in the 1950s by Herbert Simon; only recently has it influenced mainstream economics. In this book, Ariel Rubinstein defines models of bounded rationality as those in which elements of the process of choice are explicitly embedded. The book focuses on the challenges of modeling bounded rationality, rather than on substantial economic implications. In the first part of the book, the author considers the modeling of choice. After discussing some psychological findings, he proceeds to the modeling of procedural rationality, knowledge, memory, the choice of what to know, and group decisions.In the second part, he discusses the fundamental difficulties of modeling bounded rationality in games. He begins with the modeling of a game with procedural rational players and then surveys repeated games with complexity considerations. He ends with a discussion of computability constraints in games. The final chapter includes a critique by Herbert Simon of the author's methodology and the author's response. The Zeuthen Lecture Book series is sponsored by the Institute of Economics at the University of Copenhagen.

Offering alternative models based on such concepts as satisficing(acceptance of viable choices that may not be the undiscoverableoptimum) and bounded rationality (the limited extent to which rationalcalculation can direct human behavior), Simon shows concretely whymore empirical research based on experiments and direct observation, rather than just statistical analysis of economic aggregates, isneeded.

In this candid and witty autobiography, Nobel laureate Herbert A. Simon looks at his distinguished and varied career, continually asking himself whether (and how) what he learned as a scientist helps to explain other aspects of his life. A brilliant polymath in an age of increasing specialization, Simon is one of those rare scholars whose work defines fields of inquiry. Crossing disciplinary lines in half a dozen fields, Simon's story encompasses an explosion in the information sciences, the transformation of psychology by the information-processing paradigm, and the use of computer simulation for modeling the behavior of highly complex systems. Simon's theory of bounded rationality led to a Nobel Prize in economics, and his work on building machines that think—based on the notion that human intelligence is the rule-governed manipulation of symbols—laid conceptual foundations for the new cognitive science. Subsequently, contrasting metaphors of the maze (Simon's view) and of the mind (neural nets) have dominated the artificial intelligence debate. There is also a warm account of his successful marriage and of an unconsummated love affair, letters to his children, columns, a short story, and political and personal intrigue in academe.

In a complex and uncertain world, humans and animals make decisions under the constraints of limited knowledge, resources, and time. Yet models of rational decision making in economics, cognitive science, biology, and other fields largely ignore these real constraints and instead assume agents with perfect information and unlimited time. About forty years ago, Herbert Simon challenged this view with his notion of "bounded rationality." Today, bounded rationality has become a fashionable term used for disparate views of reasoning. This book promotes bounded rationality as the key to understanding how real people make decisions. Using the concept of an "adaptive toolbox," a repertoire of fast and frugal rules for decision making under uncertainty, it attempts to impose more order and coherence on the idea of bounded rationality. The contributors view bounded rationality neither as optimization under constraints nor as the study of people's reasoning fallacies. The strategies in the adaptive toolbox dispense with optimization and, for the most part, with calculations of probabilities and utilities. The book extends the concept of bounded rationality from cognitive tools to emotions; it analyzes social norms, imitation, and other cultural tools as rational strategies; and it shows how smart heuristics can exploit the structure of environments.

Ît then rigorously analyses each model in the tradition of microeconomic theory, leading to a richer, more realistic picture of consumer behavior. Ran Spiegler analyses phenomena such as exploitative price plans in the credit market, complexity of financial products and other obfuscation practices, consumer antagonism to unexpected price increases, and the role of default options in consumer decision making. Spiegler unifies the relevant literature into three main strands: limited ability to anticipate and control future choices, limited ability to understand complex market environments, and sensitivity to reference points. Although the challenge of enriching the psychology of decision makers in economic models has been at the frontier of theoretical research in the last decade, there has been no graduate-level, theory-oriented textbook to cover developments in the last 10-15 years.

Essays that pay tribute to the wide-ranging influence of the late Herbert Simon, by friends and colleagues. Herbert Simon (1916-2001), in the course of a long and distinguished career in the social and behavioral sciences, made lasting contributions to many disciplines, including economics, psychology, computer science, and artificial intelligence. In 1978 he was awarded the Nobel Prize in economics for his research into the decision-making process within economic organizations. His well-known book The Sciences of the Artificial addresses the implications of the decision-making and problem-solving processes for the social sciences. This book (the title is a variation on the title of Simon's autobiography, Models of My Life) is a collection of short essays, all original, by colleagues from many fields who felt Simon's influence and mourn his loss. Mixing reminiscence and analysis, the book represents "a small acknowledgment of a large debt." Each of the more than forty contributors was asked to write about the one work by Simon that he or she had found most influential. The editors then grouped the essays into four sections: "Modeling Man," "Organizations and Administration," "Modeling Systems," and "Minds and Machines." The contributors include such prominent figures as Kenneth Arrow, William Baumol, William Cooper, Gerd Gigerenzer, Daniel Kahneman, David Klahr, Franco Modigliani, Paul Samuelson, and Vernon Smith. Although they consider topics as disparate as "Is Bounded Rationality Unboundedly Rational?" and "Personal Recollections from 15 Years of Monthly Meetings," each essay is a testament to the legacy of Herbert Simon—to see the unity rather than the divergences among disciplines.

The book is an attempt to stimulate development in travel behaviour analysis and provide a basic source of reference to the transportation research community. The aim of the book is to give centre stage to some recent innovative approaches to models of bounded rationality, both under conditions of certainty and uncertainty.

This is an excerpt from the 4-volume dictionary of economics, a reference book which aims to define the subject of economics today. 1300 subject entries in the complete work cover the broad themes of economic theory. This extract concentrates on utility and probability.