Bounded Rationality and Bounded Individuality
Research in the History of Economic Thought and Methodology, Forthcoming
19 Pages Posted: 20 Jun 2014
Date Written: June 19, 2014
Abstract
This paper argues that since the utility function conception of the individual is derived from standard rationality theory, the view that rationality is bounded suggests that individuality should also be seen as bounded. The meaning of this idea is developed in terms of two ways in which individuality can be said to be bounded, with one bound associated with Kahneman and Tversky’s prospect theory and the ‘new’ behavioral economics and a second bound associated with Simon’s evolutionary thinking and the ‘old’ behavioral economics. The paper then shows how different bounded individuality conceptions operate in nudge economics, agent-based modeling, and social identity theory, explaining these conceptions in terms of how they relate to these two behavioral economics views of bounded rationality. How both the ‘new’ and ‘old’ individuality bounds might then be combined in a single account is briefly explored in connection with Kirman’s Marseille fish market analysis.
Keywords: bounded rationality, bounded individuality, nudge economics, agent-based modeling, social identity theory, Marseille fish market
JEL Classification: B4, D8, Z13
Suggested Citation: Suggested Citation