Tag Archives: Bounded rationality

Kaufman, B. E. (1999). Emotional arousal as a source of bounded rationality. Journal of Economic Behavior &Organization, 38(2), 135-144.

This paper proposes an alternative psychological explanation for bounded rationality. According to Herbert Simon, bounded rationality arises from human cognitive limitations. Following the suggestion of institutional economist John R. Commons, I argue that extremes in emotional arousal also contribute to bounded rationality. This idea is formalized and developed using the Yerkes–Dodson law from psychology. Examples …

Continue reading “Kaufman, B. E. (1999). Emotional arousal as a source of bounded rationality. Journal of Economic Behavior &Organization, 38(2), 135-144.”

MacLeod, W. B. (1996). Decision, contract, and emotion: Some economics for a complex and confusing world. Canadian Journal of Economics, 788-810.

This essay illustrates that if Savage’s small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of endowment effects in exchange. /// Décision, contrat et émotion: …

Continue reading “MacLeod, W. B. (1996). Decision, contract, and emotion: Some economics for a complex and confusing world. Canadian Journal of Economics, 788-810.”