Bounded Rationality

[RG # 130] Bounded Rationality: Beyond the Classical Paradigm

March 1 - August 31, 2012

Organizer:

Elchanan Ben-Porath (The Hebrew University)

The classical model in economic theory assumes that the economic agent is fully rational. In particular, it is assumed that the agent is aware of the set of actions that is available to him and has a correct model of the environment in which he is operating. In particular, he understands the relationship between his actions and outcomes. Any calculation or consideration that is relevant to achieve this complete understanding of the environment can be done without mistake, with no delay, and without cost. In addition, the agent has a complete and consistent preference over the set of possible outcomes and chooses the action that leads to the best outcome with respect to his preference.

This model is clearly unrealistic. A human agent is often unaware of actions, contingencies, and considerations that are relevant for the decision problem that he is facing. He often finds it difficult to form a preference (for example, to determine his trade-off between price and quality, or the trade-off between current pleasure and future welfare), and there are specific limits on his ability to process information (specifically, attention, memory, and thinking are bounded and costly). Economists have of course realized that people are subject to these limitations; however, until they were exposed to the research in cognitive psychology they did not have a concrete sense of the systematic deviations of human decision making from the rational model.

The research agenda of our group consists of two main components:

(1) Studying models of decision making that depart from the standard model and in particular take into account cognitive limitations and non-standard preferences.

(2) Studying the implications of bounded rationality in multi-person interactions, in particular, games and market economics.

2011-2012 Research Groups 2011-2012 Engineering and Mathematics

Members

Elchanan Ben-Porath

FELLOW

The Hebrew University of Jerusalem

Elchanan is a professor at the Center for the Study of Rationality and the Department of Economics at The Hebrew University of Jerusalem. His research interests are economic theory, especially game theory and information economics, and distributive justice.

Eddie Dekel

FELLOW

Northwestern University/Tel Aviv University

Eddie is a professor at Northwestern University, USA, and Tel Aviv University. His research interests are game theory, decision theory, voting theory, and mechanism design.

Erik Eyster

FELLOW

London School of Economics

Erik is a professor at the London School of Economics, UK. His research interests are microeconomic theory, psychology and economics, political economy, and errors in strategic decision making.

Dean Foster

FELLOW

University of Pennsylvania

Dean is a professor at the Wharton School of the University of Pennsylvania, USA. His research interests are machine learning, game theory and variable selection.

Sergiu Hart

FELLOW

The Hebrew University of Jerusalem

Sergiu is a professor at the Center for the Study of Rationality, the Department of Mathematics and the Department of Economics at The Hebrew University of Jerusalem. His research interests are game theory, economic theory, and rationality.

Yusufcan Masatlioglu

FELLOW

University of Michigan

Yusufcan is a professor in the Department of Economics at the University of Michigan, USA. His research interests are individual decision theory, microeconomic theory, and experimental economics.

Ady Pauzner

FELLOW

Tel Aviv University

Ady is a professor in the Eitan Berglas School of Economics at Tel Aviv University. His research interests are game theory and economic theory.

Larry Samuelson

FELLOW

Yale University

Larry is a professor in the Department of Economics at Yale University, USA. His research interests are microeconomic theory, game theory, repeated games, and evolutionary foundations of economic behaviour.

Joel Sobol

FELLOW

UC San Diego

Joel is a professor in the Department of Economics at UC San Diego, USA. His research interests are game theory and information economics.

Tomasz Strzalecki

FELLOW

Harvard University

Tomasz is a professor in the Department of Economics at Harvard University, USA. His research interests are decision theory, bounded rationality, and behavioural economics.

Asher Wolinsky

FELLOW

Northwestern University

Asher is a professor in the Department of Economics at Northwestern University, USA. His research interests are economic theory with much of the focus on game theoretic models of markets and institutions.

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