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Maps of bounded rationality: Psychology for behavioral economics

Economics, Psychology, intuition

Abstract

The work cited by the Nobel committee was done jointly with Amos Tversky (1937-1996) during a long and unusually close collaboration. Together, we explored the psychology of intuitive beliefs and choices and examined their bounded rationality. Herbert A. Simon (1955, 1979) had proposed much earlier that decision makers should be viewed as boundedly rational, and had offered a model in which utility maximization was replaced by satisficing. Our research attempted to obtain a map of bounded rationality, by exploring the systematic biases that separate the beliefs that people have and their choices they make from the optimal beliefs and choices assumed in rational-agent models. The rational-agent model was our starting point and the main source or our null hypotheses, Tversky and I viewed our research primarily as a contribution to psychology, with a possible contribution to economics as a secondary benefit. We were drawn into the interdisciplinary conversation by economists who hoped that psychology could be a useful source of assumptions for economic theorizing, and indirectly a source of hypotheses for economic Research (Richard H. Thaler, 1980, 1991, 1992).

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