Hostname: page-component-5cf477f64f-tgq86 Total loading time: 0 Render date: 2025-03-26T09:03:45.367Z Has data issue: false hasContentIssue false
  • English
  • Français

Bounded Rationality in Individual Decision Making

Published online by Cambridge University Press:  14 March 2025

Colin Camerer
Colin Camerer*
Affiliation:
Division of Humanities and Social Sciences, California Institute of Technology, Pasadena CA 91125
*
email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

The main objectives of this paper are: (i) To give a pithy, opinionated summary of what has been learned about bounded rationality in individual decision making from experiments in economics and psychology (drawing on my 1995 Handbook of Experimental Economics chapter); and (ii) mention some promising new directions for research which would be included if that chapter were written today.

Type
Research Article
Information
Experimental Economics , Volume 1 , Issue 2 , September 1998 , pp. 163 - 183
Copyright
Copyright © 1998 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Ainslie, G. (1975). “Specious Reward: A Behavioral Theory of Impulsiveness and Impulse Control.” Psycholoical Bulletin. 82, 463–509.CrossRefGoogle ScholarPubMed
Becker, G.S. and Murphy, K.M. (1988). “A Theory of Rational Addiction.” Journal of Political Economy. 96, 675–700.CrossRefGoogle Scholar
Benartzi, S. and Richard, T. (1995). “Myopic Loss Aversion and the Equity Premium Puzzle.” Quarterly Journal of Economics. 101, 73–92.CrossRefGoogle Scholar
Bowman, D., Minehart, D., and Rabin, M. (1996). “Loss Aversion in a Savings Model.” Berkeley Working Paper, University of California,.Google Scholar
Buschena, D. and Zilberman, D. (1995). “Performance of the Similarity Hypothesis Relative to Existing Models of Risky Choice.” Journal of Risk and Uncertainty. 11, 233–254.CrossRefGoogle Scholar
Camerer, C.F. (1987). “Do Biases in Probability Judgment Matter in Markets? Experimental Evidence?” American Economic Review. 77, 981–997.Google Scholar
Camerer, C.F. (1989). “An Experimental Test of Several Generalized Utility Theories.” Journal of Risk and Uncertainty. 2, 61–104.CrossRefGoogle Scholar
Camerer, C.F. (1992). “Recent Tests of Generalized Utility Theories.” In Edwards, W. (ed.), Utility Theories: Measurement and Applications. Cambridge: Cambridge University Press.Google Scholar
Camerer, C.F. (in press). “Behavioral Economics in the Wild: Field Evidence for Prospect Theory.” In Kahneman, D. and Tversky, A. (eds.), Choices, Values and Frames.Google Scholar
Camerer, C.F., Babcock, L., Loewenstein, G., and Thaler, R. (1997). “Labor Supply of New York City Cab Drivers: One day at a Time.” Quarterly Journal of Economics. 103, 407–441.CrossRefGoogle Scholar
Camerer, C.F. and Ho, T.H. (in press). “Experience-Weighted Attraction Learning in Normal-Form Games.” Econometrica.Google Scholar
Camerer, C.F. and Weber, M.W. (1992). “Recent Developments in Modeling Preferences: Uncertainty and Ambiguity.” Journal of Risk and Uncertainty. 5, 325–370.CrossRefGoogle Scholar
Canning, D. (1997). “Evolution, Preferences, and Choice Under Uncertainty.” Queen's University of Belfast Working Paper.Google Scholar
Chew, S.H. and MacCrimmon, K.R. (1979). “Alpha Utility Theory, Lottery Composition and the Allais Paradox.” University of British Columbia Faculty of Commerce and Business Administration #686.Google Scholar
Chew, S.H. and Waller, W.S. (1986). “Empirical Tests of Weighted Utility Theory.” Journal of Mathematical Psychology. 30, 55–72.Google Scholar
Ciccheti, C. and Dubin, J. (1994). “A Microeconometric Analysis of Risk-Aversion and the Decision to SelfInsure.” Journal of Political Economy. 102, 169–186.CrossRefGoogle Scholar
Cohen, D. and Knetsch, J.L. (1992). “Judicial Choice and Disparities Between Measure of Economic Values”. Osgoode Hall Law Journal. 30, 737–792.CrossRefGoogle Scholar
Cook, PJ. and Clotfelter, C.T. (1993). “The Peculiar Scale Economies of Lotto.” American Economic Review. 83, 634–643.Google Scholar
Cubitt, R. and Sugden, R. (in press). “The Selection of Preferences Through Imitation.” Review of Economics Studies.Google Scholar
Frisch, D. and Baron, J. (1988). “Ambiguity and Rationality.” Journal of Behavioral Decision Making. 1, 149–157.CrossRefGoogle Scholar
Ganguly, A., Kagel, J.H., and Moser, D.V. (1998). “Do Asset Market Prices Reflect Traders’ Judgment Biases?” Working Paper, University of Pittsburgh.Google Scholar
Ghirardato, P. (1997). “On Independence for Non-Additive Mtasures, with a Fubini Theorem.” Journal of Economic Theory. 73, 261–291.CrossRefGoogle Scholar
Gilboa, I. and Schmeidler, D. (1995). “Case-Based Decision Theory.” Quarterly Journal of Economics. 110, 605–640.CrossRefGoogle Scholar
Hardie, B.G.S., Johnson, E.J., and Fader, P.S. (1993). “Modeling Loss Aversion and Reference Dependence Effects on Brand Choice.” Marketing Science. 12, 378–394.CrossRefGoogle Scholar
Harless, D. and Camerer, C.F. (1994). “The Predictive Utility of Generalized Expected Utility Theories.” Econometrica. 62, 1251–1290.CrossRefGoogle Scholar
Hey, J.D. and Orme, C. “Investigating Generalizations of Expected Utility Theory Using Experimental Data.” Econometrica. 62 (November), 1291.CrossRefGoogle Scholar
Jullien, Bruno and Salanie, Bernard. (1997). “Estimating Preferences Under Risk: The Case of Racetrack Bettors.” IDEI and GREMAQ Toulouse University working paper.Google Scholar
Kahneman, D. and Tversky, A. (1979). “Prospect Theory: An Analysis of Decision Under Risk.” Econometrica. 47, 263–291.CrossRefGoogle Scholar
Kahneman, D. and Tversky, A. (1992). “Advances in Prospect Theory: Cumulative Representation of Uncertainty.” Journal of Risk and Uncertainty. 5, 297–324.Google Scholar
Kahneman, D., Sarin, R., and Wakker, P.P. (1997). “Back to Bentham? Explorations of Experienced Utility.” Quarterly Journal of Economics. 112, 375–406.CrossRefGoogle Scholar
Laibson, D.I. (1996). “A Cue Theory of Consumption.” Harvard University Manuscript.Google Scholar
Laibson, D.I. (1997). “Golden Eggs and Hyperbolic Discounting.” Quarterly Journal of Economics. 112, 443–478.CrossRefGoogle Scholar
Lattimore, P.K., Baker, J.R., and Witte, A.D. (1992). “The Influence of Probability on Risky Choice: A Parametric Investigation.” Journal of Economic Behavior and Organization. 17, 377–400.CrossRefGoogle Scholar
Leland, J. (1991). “A Theory of Approximate Expected Utility Maximization.” Carnegie-Mellon Department of Social and Decision Sciences.Google Scholar
Loewenstein, G. (1987). “Anticipation and the Valuation of Delayed Consumption.” Economic Journal. 97, 666684.CrossRefGoogle Scholar
Loewenstein, G. (1992). “The Fall and Rise of Psychological Explanation in the Economics of Intertemporal Choice.” In Loewenstein, G. and Elster, J. (eds.), Choice Over Time. New York: Russell Sage Foundation.Google Scholar
Loewenstein, G. (1996). “Out of Control: Visceral Influences on Behavior.” Organizational Behavior and Human Decision Processes. 65, 272–292.CrossRefGoogle Scholar
Loewenstein, G. and Schkade, D. (in press). “Wouldn't it be Nice? Predicting Future Feelings.” In Diener, E., Kahneman, D., and Schwarz, N. (eds.), Foundations of hedonic psychology: Scientific perspectives on enjoyment and suffering. New York: Russell Sage Foundation Press.Google Scholar
Machina, M.J. (1982). “‘Expected Utility’ Analysis Without the Independence Axiom.” Econometrica. 50, 277323.CrossRefGoogle Scholar
Morgenstern, O. (1979). “Some Reflections on Utility Theory.” In Allais, M. and Hagen, O. (eds.), The Expected Utility Hypothesis and the Allais Paradox. Dordrecht: D. Reidel.Google Scholar
Myagkov, M. and Plott, C.R. (1997). “Exchange Economies and Loss Exposure: Experiments Exploring Prospect Theory and Competitive Equilibria in Market Environments.” American Economic Review. 87, 801–828.Google Scholar
Odean, Terrance. (in press). “Are Investors Reluctant to Realize Their Losses?” Journal of Finance.Google Scholar
O’Donoghue, T. and Rabin, M. (in press). “Doing it Now, or Later.” American Economic Review.Google Scholar
Phelps, E.S. and Pollak, R.A. (1968). “On Second-Best National Saving and Game-Equilibrium Growth.” Review of Economic Studies. 35, 201–208.CrossRefGoogle Scholar
Prelec, D. (in press). “The Probability Weighting Function.” Econometrica.Google Scholar
Quiggin, J. (1982). “A Theory of Anticipated Utility.” Journal of Economic Behavior and Organization. 3, 323343.CrossRefGoogle Scholar
Rabin, M. and Schrag, J. (1997). “Confirmation Bias.” Berkeley Department of Economics Working Paper, University of California (unpublished).Google Scholar
Read, D. and Loewenstein, G. (1995). “The Diversification Bias: Explaining the Difference Between Prospective and Real-Time Taste for Variety.” Journal of Experimental Psychology: Applied. 1, 34–49.Google Scholar
Rubinstein, A. (1988). “Similarity and Decision-Making Under Risk (Is There a Utility Theory Resolution to the Allais Paradox?).” Journal of Economic Theory. 46, 145–153.CrossRefGoogle Scholar
Rubinstein, A. (1997). Modeling Bounded Rationality. Cambridge: MIT Press.Google Scholar
Sargent, TJ. (1994). Bounded Rationality in Macroeconomics. New York: Oxford.Google Scholar
Schmeidler, D. (1989). “Subjective Probability and Expected Utility Without Additivity.” Econometrica. 57, 571587.CrossRefGoogle Scholar
Shea, J. (1995). “Union Contracts and the Life-Cycle/Permanent-Income Hypothesis.” American Economic Review. 85, 186–200.Google Scholar
Shizgal, P. (1997). “Neural Basis of Utility Estimation.” Current Opinion in Neurobiology. 7, 198–206.CrossRefGoogle ScholarPubMed
Starmer, C. (in press). “Developments in Non-Expected Utility Theory: The Hunt for a Descriptive Theory of Choice Under Risk.” Journal of Economic Literature.Google Scholar
Sunstein, C. (1997). “Behavioral Analysis of Law.” University of Chicago Law Review. 64, 1175–1189.CrossRefGoogle Scholar
Thaler, R.H. (in press). “Mental Accounting Matters.” In Kahneman, D. and Tversky, A. (eds.), Choices, Values and Frames.Google Scholar
Thaler, R.H. (ed.). (1995). Advances in Behavioral Finance. New York: Russell Sage Foundation Press.Google Scholar
von Neumann, J. and Morgenstern, O. (1944). Theory of Games and Economic Behavior Princeton: Princeton University Press,.Google Scholar
Weibull, J.W. (1995). Evolutionary Game Theory. Cambridge: MIT Press.Google Scholar