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Decision, Contract, and Emotion: Some Economics for a Complex and Confusing World

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  • W. Bentley MacLeod

Abstract

This essay illustrates that is if Leonard J. Savage's (1972) small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of endowment effects in exchange.

Suggested Citation

  • W. Bentley MacLeod, 1996. "Decision, Contract, and Emotion: Some Economics for a Complex and Confusing World," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 788-810, November.
  • Handle: RePEc:cje:issued:v:29:y:1996:i:4:p:788-810
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    Cited by:

    1. Benjamin E. Hermalin and Alice M. Isen., 1999. "The Effect of Affect on Economic and Strategic Decision Making," Economics Working Papers E99-270, University of California at Berkeley.
    2. Mayer, Stefan & Steinhardt, Claudius, 2016. "Optimal product line pricing in the presence of budget-constrained consumers," European Journal of Operational Research, Elsevier, vol. 248(1), pages 219-233.
    3. J Foster, 2000. "Is There A Role For Transaction Cost Economics If We View Firms As Complex Adaptive Systems?," Contemporary Economic Policy, Western Economic Association International, vol. 18(4), pages 369-385, October.
    4. Ben-Ner, Avner & Putterman, Louis, 2000. "On some implications of evolutionary psychology for the study of preferences and institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 91-99, September.
    5. James E. Anderson, 1999. "Why Do Nations Trade (So Little)?," Boston College Working Papers in Economics 428, Boston College Department of Economics.
    6. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    7. Hanoch, Yaniv, 2002. ""Neither an angel nor an ant": Emotion as an aid to bounded rationality," Journal of Economic Psychology, Elsevier, vol. 23(1), pages 1-25, February.
    8. Lu Hong & Scott E. Page, 1998. "Diversity and Optimality," Research in Economics 98-08-077e, Santa Fe Institute.
    9. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2015. "Consumer Choice as Constrained Imitation," PIER Working Paper Archive 15-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    10. Scott E. Page, 1998. "Uncertainty, Difficulty, and Complexity," Research in Economics 98-08-076e, Santa Fe Institute.

    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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