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Diminished-dimensional political economy

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  • Harstad, Ronald M.
  • Selten, Reinhard

Abstract

Economists base policy advice on models of responses by a variety of economic entities to policy adoptions. There is compelling evidence that these entities do not optimize as mainstream economics assumes. Rather, they limit decision-making to solving problems of much smaller dimensionality. We consider how political economy goes awry when ignoring diminished dimensionality, and some research avenues opened up by this realization.

Suggested Citation

  • Harstad, Ronald M. & Selten, Reinhard, 2016. "Diminished-dimensional political economy," European Economic Review, Elsevier, vol. 83(C), pages 213-219.
  • Handle: RePEc:eee:eecrev:v:83:y:2016:i:c:p:213-219
    DOI: 10.1016/j.euroecorev.2015.08.006
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    References listed on IDEAS

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    1. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
    2. Algan, Yann & Allais, Olivier & Den Haan, Wouter J., 2008. "Solving heterogeneous-agent models with parameterized cross-sectional distributions," Journal of Economic Dynamics and Control, Elsevier, vol. 32(3), pages 875-908, March.
    3. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
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    5. Laffont, Jean-Jacques & Tirole, Jean, 1986. "Using Cost Observation to Regulate Firms," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 614-641, June.
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    7. Pascaline Dupas & Jonathan Robinson, 2013. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," American Economic Review, American Economic Association, vol. 103(4), pages 1138-1171, June.
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    Cited by:

    1. Schnellenbach, Jan & Schubert, Christian, 2015. "Behavioral political economy: A survey," European Journal of Political Economy, Elsevier, vol. 40(PB), pages 395-417.
    2. Kuehnhanss, Colin R. & Heyndels, Bruno & Hilken, Katharina, 2015. "Choice in politics: Equivalency framing in economic policy decisions and the influence of expertise," European Journal of Political Economy, Elsevier, vol. 40(PB), pages 360-374.

    More about this item

    Keywords

    Political economy; Modeling economic policy impacts; Dimensional size of mathematical problems;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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