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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Length: 25 pages Date of creation: 2007 Date of revision: Handle: RePEc:mlb:wpaper:1012
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Find related papers by JEL classification: C0 - Mathematical and Quantitative Methods - - General D7 - Microeconomics - - Analysis of Collective Decision-Making
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Ted O'Donoghue & Matthew Rabin, 1999.
"Doing It Now or Later,"
American Economic Review,
American Economic Association, vol. 89(1), pages 103-124, March.
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