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Behavioural Anomalies, Bounded Rationality and Simple Heuristics

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  • Suren Basov
  • Liam Blanckenberg
  • Lata Gangadharan

Abstract

The use of bounded rationality in explaining economic phenomena has attracted growing attention. In spite of this, there is still considerable disagreement regarding the meaning of bounded rationality. Basov (2005) argues that when modeling boundedly rational behaviour it is desirable to start with an explicit formulation of the learning process. A complete understanding of the boundedly rational decision-making process requires development of an evolutionary-dynamic model which can give rise to such learning processes. Evolutionary dynamics implies that individuals use heuristics to adjust their choices in light of past experiences, moving in the direction that appears most beneficial, where these adjustment rules are assumed ‘hardwired’ into human cognition through the process of biological evolution. In this paper we elaborate on the latter point by building a model of evolutionary selection relevant to heuristics. We show that in addition to explaining the origin of learning rules this approach also sheds light on some well documented preference anomalies.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1012.

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Length: 25 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:mlb:wpaper:1012

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Keywords: Bounded Rationality; Heuristics; Replicator Dynamics;

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References

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  1. Brookshire, David S & Coursey, Don L, 1987. "Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures," American Economic Review, American Economic Association, vol. 77(4), pages 554-66, September.
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  13. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
    by inobrec in Knowledge Team on 2012-06-17 18:01:29
  2. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
    by inobrec in Knowledge Team on 2012-06-17 17:57:51
  3. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
    by inobrec in Knowledge Team on 2012-06-17 17:46:04
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Cited by:
  1. Friedrich Heinemann & Theocharis Grigoriadis, 2013. "Origins of Reform Resistance and the Southern European Regime," WWWforEurope Working Papers series 20, WWWforEurope.

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