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‘But Can'T We Get The Same Thing With A Standard Model?’ Rationalizing Bounded-Rationality Models

  • Spiegler, Ran

This paper discusses a common criticism of economic models that depart from the standard rational-choice paradigm - namely, that the phenomena addressed by such models can be ‘rationalized’ by some standard model. I criticize this criterion for evaluating bounded-rationality models. Using a market model with boundedly rational consumers due to Spiegler (2006a) as a test case, I show that even when it initially appears that a bounded-rationality model can be rationalized by a standard model, rationalizing models tend to come with unwarranted ‘extra baggage’. I conclude that we should impose a greater burden of proof on rationalizations that are offered in refutation of bounded-rationality models.

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Article provided by Cambridge University Press in its journal Economics and Philosophy.

Volume (Year): 27 (2011)
Issue (Month): 01 (March)
Pages: 23-43

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Handle: RePEc:cup:ecnphi:v:27:y:2011:i:01:p:23-43_00
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  1. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
  2. Rabin, Matthew, 2002. "A perspective on psychology and economics," European Economic Review, Elsevier, vol. 46(4-5), pages 657-685, May.
  3. Olivier Compte & Andrew Postlewaite, 2003. "Confidence-Enhanced Performance," PIER Working Paper Archive 03-009, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  4. Ariel Rubinstein, 2004. "Dilemmas of an Economic Theorist," Econometric Society 2004 North American Summer Meetings 661, Econometric Society.
  5. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  6. Emir Kamenica, 2008. "Contextual Inference in Markets: On the Informational Content of Product Lines," American Economic Review, American Economic Association, vol. 98(5), pages 2127-49, December.
  7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  8. Eddie Dekel & Barton L. Lipman, 2010. "How (Not) to Do Decision Theory," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 257-282, 09.
  9. Binmore, Ken & Shaked, Avner, 2010. "Experimental economics: Where next?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 87-100, January.
  10. Sandeep Baliga & Jeffrey C. Ely, 2011. "Mnemonomics: The Sunk Cost Fallacy as a Memory Kludge," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 35-67, November.
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