The Model of Bounded Rationality: a New Methodological Tool of Economic Theory

The main purpose of this article is to study and analyze the economic behaviour of market participants in real conditions, and to outline the very natural trait of individuals to show bounded rationality. The theoretical framework of bounded rationality is presented, and a comparative analysis is carried out between the neoclassical theory of rational behaviour and the concept of quasi-rational economic agents according to behavioural economics. Special emphasis is placed on the correlation between the decisionmaking process and the concept of limited rationality. This article confirms the thesis that the model of the rational economic individual is not the best model. Research in this area proves that this model has great imperfections, but, at the moment, the empirical material is still not enough to create another, newer and practically applicable model of behaviour of the real economic person, which is characterized by bounded rationality.

Behavioural Biases Distorting the Demand for Environmentally Friendly Freight Transport Modes: An Overview and Potential Measures

A basic assumption of many scientific theories on the topic of decision making is rational behaviour. However, previous authors assume the existence of behavioural biases in freight transport which impede rational decision making. Hardly any research exists on behavioural biases in freight transport. To address this gap, we carry out a systematic literature review on the influencing factors of freight mode choice and provide empirical evidence for the occurrence of behavioural biases in the logistics sector. Fifteen logistics service providers and six shippers are involved in interviews and a focus group to understand their mode choice process and derive information on the existence of behavioural biases. Several biases showed to exist in the practical decision-making process. For example, decision makers tend to avoid complex options (principle of least effort), they stick to already tried and tested options (status quo bias, zero-risk bias) and they tend to make decisions based on immediate and easily accessible information (availability bias). These biases distort the demand for sustainable freight transport. We therefore conclude with several motivational, cognitive and technological debiasing strategies to reduce the negative impact of behavioural biases in freight transport.

A study of boundedly rational behaviour in housing choice: evidence from Malaysia

Purpose Housing choice is always a complicated decision with its dual functions as a roof over the head and as an investment good. This paper aims to investigate the boundedly rational behaviours that affect the housing choice three bounded behaviours play roles in explaining the decision-making behaviour of homebuyers when they acquire/sell a property. These behaviours are endowment effect, loss aversion and herding, which have implications on the decision-making process. Design/methodology/approach The research is based on cross-sectional questionnaires and collected from 587 respondents. Factor analysis and reliability tests were used to identify the latent construct of bounded rational housing choice behaviour. In the meantime, the study used one-way analysis of variance (ANOVA) to examine whether there are any differences in the housing choice based on the respondents’ demographic backgrounds. Findings The findings indicated that a total of 11 items were reduced to three factors that accounted for the decision-making in housing choice. There are significant differences in herding behaviour amongst respondents with different level of education and their purpose of looking for a house. Research limitations/implications This paper helps to identify latent constructs that shed light on the housing choice, especially on the bounded rational behaviour. Originality/value This is one of the few studies to explore boundedly rational behaviours in housing choice from the angle of homebuyers. Previous studies addressed housing choice in terms of price, demand and supply in general but not on individual homebuyers. The results will be useful to developers, policymakers, homebuyers as well as scholars in understanding the decision-making process in housing choice.

Belief Change without Compactness

Dealing with dynamics is a vital problem in Artificial Intelligence (AI). An intelligent system should be able to perceive and interact with its environment to perform its tasks satisfactorily. To do so, it must sense external actions that might interfere with its tasks, demanding the agent to self-adapt to the environment dynamics. In AI, the field that studies how a rational agent should change its knowledge in order to respond to a new piece of information is known as Belief Change. It assumes that an agent’s knowledge is specified in an underlying logic that satisfies some properties including compactness: if an information is entailed by a set X of formulae, then this information should also be entailed by a finite subset of X. Several logics with applications in AI, however, do not respect this property. This is the case of many temporal logics such as LTL and CTL. Extending Belief Change to these logics would provide ways to devise self-adaptive intelligent systems that could respond to change in real time. This is a big challenge in AI areas such as planning, and reasoning with sensing actions. Extending belief change beyond the classical spectrum has been shown to be a tough challenge, and existing approaches usually put some constraints upon the system, which are either too restrictive or dispense some of the so desired rational behaviour an intelligent system should present. This is a summary of the thesis “Belief Change without Compactness” by Jandson S Ribeiro. The thesis extends Belief Change to accommodate non-compact logics, keeping the rationality criteria and without imposing extra constraints. We provide complete new semantic perspectives for Belief Change by extending to non-compact logics its three main pillars: the AGM paradigm, the KM paradigm and Non-monotonic Reasoning.

The Paradox of Predictability

Scriven’s paradox of predictability arises from the combination of two ideas: first, that everything in a deterministic universe is, in principle, predictable; second, that it is possible to create a system that falsifies any prediction that is made of it. Recently, the paradox has been used by Rummens and Cuypers to argue that there is a fundamental difference between embedded and external predictors; and by Ismael to argue against a governing conception of laws. The present paper defends a new diagnosis of the roots of the paradox. First, it is argued that the unpredictability has to be understood in the light of Turing’s famous results about computability, in particular his proof that there is no solution to the ‘halting problem.’ This allows us to see that previous analyses of the paradox were either mistaken or not fully adequate. Second, the sense of paradox that nevertheless remains is traced to the idea that rational behaviour is not dependent on contingent environmental circumstances: that it is always up to us to engage in activities such as rational prediction or rational belief. The paradox of predictability teaches us that this idea, natural though it may be, is mistaken.

Exit rights open complex pathways to cooperation

We study the evolutionary dynamics of the Prisoner’s Dilemma game in which cooperators and defectors interact with another actor type called exiters. Rather than being exploited by defectors, exiters exit the game in favour of a small pay-off. We find that this simple extension of the game allows cooperation to flourish in well-mixed populations when iterations or reputation are added. In networked populations, however, the exit option is less conducive to cooperation. Instead, it enables the coexistence of cooperators, defectors, and exiters through cyclic dominance. Other outcomes are also possible as the exit pay-off increases or the network structure changes, including network-wide oscillations in actor abundances that may cause the extinction of exiters and the domination of defectors, although game parameters should favour exiting. The complex dynamics that emerges in the wake of a simple option to exit the game implies that nuances matter even if our analyses are restricted to incentives for rational behaviour.

The home bias and the local bias: A survey

The home bias like the disposition effect is a well-researched economic phenomenon in investor behaviour which has been examined in finance journal articles for decades. While there is little doubt about the existence of the bias, its magnitude varies across countries and investor groups. The home bias has to be regarded as a multifactorial phenomenon, a combination of numerous causes which all synergistically contribute. In contrast to other biases the home bias can at least partially be explained by reasons beyond irrational investor behaviour. While institutional restrictions play a minor role, informational asymmetries and superior information of domestic investors are important factors. Thus, the performance of investments may well benefit from a home bias, and the bias then no longer would be a puzzle but rather rational behaviour as a lower diversification level may lead to higher returns. The contemporary understanding of the home bias gains in relevance as the ongoing political debate in Germany has to clarify an institutional framework for long-run retirement savings plans of private households based on equity investments.

Frege’s puzzle and the ex ante Pareto principle

The ex ante Pareto principle has an intuitive pull, and it has been a principle of central importance since Harsanyi’s defence of utilitarianism (to be found in e.g. Harsanyi, Rational behaviour and bargaining equilibrium in games and social situations. CUP, Cambridge, 1977). The principle has been used to criticize and refine a range of positions in welfare economics, including egalitarianism and prioritarianism. But this principle faces a serious problem. I have argued elsewhere (Mahtani, J Philos 114(6):303-323 2017) that the concept of ex ante Pareto superiority is not well defined, because its application in a choice situation concerning a fixed population can depend on how the members of that population are designated. I show in this paper that in almost all cases of policy choice, there will be numerous sets of rival designators for the same fixed population. I explore two ways that we might complete the definition of ex ante Pareto superiority. I call these the ‘supervaluationist’ reading and the ‘subvaluationist’ reading. I reject the subvaluationist reading as uncharitable, and argue that the supervaluationist reading is the most promising interpretation of the ex ante Pareto principle. I end by exploring some of the implications of this principle for prioritarianism and egalitarianism.

Prospective image of the industrial future

World and facts that will structurally organize it, in the future will be much different from a position in which they are nowadays. Dynamics of development is a result of rapid events and implementation of change. If technology generates a change, a question of survival of functioning and controlling mechanisms for managing businesses in past is being imposed. Chain reaction will show as necessary. The new information will represent the basic of decision of predictive character. The laws of construction and functioning of cybernetic systems are supported. Evolutionary economy [1] and digital Darwinism will mark, from a historical aspect, the content of work and communication. If the natural systems came to be in a spontaneous order, the social organizations are constructed, which especially stands for enterprise, that is set to be efficient and useful creation and whose shaping and management is based solely on a rational behaviour, which means a goal-oriented business direction. In accordance with the topic, the industrial policies, dying industries, propulsive industries in making, occurring technologies will be evaluated that are characterized by AI as well as tendencies of the evolutionary character and digital Darwinism. The result of work should represent the whole model and partial models of industry of the future. IT and communication process (networking) create a symbiosis and that will be a necessity for functioning the organizational systems