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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, the 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 such 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. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
  2. Olivier Compte & Andrew Postlewaite, 2001. "Confidence-Enhanced Performance," PIER Working Paper Archive 04-023, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 May 2003.
  3. Rabin, Mathew, 2002. "A Perspective on Psychology and Economics," Department of Economics, Working Paper Series qt4z78n1r9, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Eddie Dekel & Barton L. Lipman, 2009. "How (Not) to Do Decision Theory," Levine's Working Paper Archive 814577000000000339, David K. Levine.
  5. 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.
  6. 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.
  7. Ariel Rubinstein, 2004. "Dilemmas of an Economic Theorist," Econometric Society 2004 North American Summer Meetings 661, Econometric Society.
  8. Binmore, Ken & Shaked, Avner, 2010. "Experimental economics: Where next?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(1), pages 87-100, January.
  9. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
  10. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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