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Behavioural Anomalies, Bounded Rationality and Simple Heuristics

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  • Suren Basov
  • Liam Blanckenberg
  • Lata Gangadharan

Abstract

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.

Suggested Citation

  • Suren Basov & Liam Blanckenberg & Lata Gangadharan, 2007. "Behavioural Anomalies, Bounded Rationality and Simple Heuristics," Department of Economics - Working Papers Series 1012, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:1012
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    References listed on IDEAS

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    1. Suren Basov, 2005. "Bounded rationality: static versus dynamic approaches," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 871-885, June.
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    6. Simon P. Anderson & Jacob K. Goeree & Charles A. Holt, 1998. "Rent Seeking with Bounded Rationality: An Analysis of the All-Pay Auction," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 828-853, August.
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    9. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, January.
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    13. Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2001. "Minimum-Effort Coordination Games: Stochastic Potential and Logit Equilibrium," Games and Economic Behavior, Elsevier, vol. 34(2), pages 177-199, February.
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    1. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
      by inobrec in Knowledge Team on 2012-06-17 23:01:29
    2. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
      by inobrec in Knowledge Team on 2012-06-17 22:57:51
    3. Behavioural Anomalies, Bounded Rationality and Simple Heuristics
      by inobrec in Knowledge Team on 2012-06-17 22:46:04

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    Cited by:

    1. Grant, Simon & Quiggin, John, 2013. "Bounded awareness, heuristics and the Precautionary Principle," Journal of Economic Behavior & Organization, Elsevier, vol. 93(C), pages 17-31.
    2. Friedrich Heinemann & Theocharis Grigoriadis, 2016. "Origins of reform resistance and the Southern European regime," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(4), pages 661-691, November.
    3. repec:wfo:wstudy:46881 is not listed on IDEAS

    More about this item

    Keywords

    Bounded Rationality; Heuristics; Replicator Dynamics;

    JEL classification:

    • C0 - Mathematical and Quantitative Methods - - General
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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