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Bounded rationality and perfect rationality: psychology into economics

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  • Schilirò, Daniele
Abstract
Mathematical algorithms often fail to identify in time when the international financial crises occur although, as the classical theory of choice would suggest, the economic agents are rational and the markets are or should be efficient and behave also rationally. This contribution tries to highlight some well-known limits of the classical theory of rational choiceand compare this theory of choice with a different notion of rationality, bounded rationality, and with an approach that seeks to combine economics and psychology, based on experimental data, which established itself as cognitive or behavioral economics. The work also examines part of the literature of behavioral finance which has given important contributions in explaining the behavior and the anomalies of financial markets. A final reference is dedicated to neuroeconomics that is gaining more and more ground in the analysis of economic behavior.

Suggested Citation

  • Schilirò, Daniele, 2012. "Bounded rationality and perfect rationality: psychology into economics," MPRA Paper 41663, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41663
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    1. Schilirò, Daniele, 2005. "Economia della conoscenza,istituzioni e sviluppo economico [Knowledge-based economy, institutions and economic development]," MPRA Paper 31492, University Library of Munich, Germany.
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    6. Daniele SCHILIRÒ, 2013. "Bounded Rationality: Psychology, Economics And The Financial Crises," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 4(1), pages 97-108.
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    20. Mario GRAZIANO & Daniele SCHILIRÒ, 2011. "Rationality And Choices In Economics: Behavioral And Evolutionary Approaches," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 2(2), pages 182-195.
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    Cited by:

    1. Daniele SCHILIRÒ, 2013. "Bounded Rationality: Psychology, Economics And The Financial Crises," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 4(1), pages 97-108.
    2. Daniele SCHILIRO, 2016. "Economics and Psychology The Framing of Decisions," Journal of Mathematical Economics and Finance, ASERS Publishing, vol. 2(2), pages 77-88.
    3. Daniele Schilirò, 2018. "Economic Decisions and Simon’s Notion of Bounded Rationality," International Business Research, Canadian Center of Science and Education, vol. 11(7), pages 64-75, July.
    4. Schilirò, Daniele, 2017. "Economics versus psychology.Risk, uncertainty and the expected utility theory," MPRA Paper 83366, University Library of Munich, Germany.
    5. Schilirò, Daniele, 2015. "Psychology into economics: fast and frugal heuristics," MPRA Paper 78162, University Library of Munich, Germany.

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    More about this item

    Keywords

    Bounded rationality; procedural rationality; rational choice; behavioral economics; neuroeconomics;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics

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