Abstract
Regulatory policies often aim to steer the behavior of economic agents by changing their economic environment. Assessing the potential impacts of regulatory policies requires forecasts regarding how humans adapt to such changes. One important prerequisite for meaningful policy impact analysis is in-depth knowledge of why and to what extent economic agents behave in a boundedly rational way. We propose that business management games can be used to contribute towards better understanding of agent behaviors, since they provide an inexpensive opportunity to reach beyond existing anecdotal evidence concerning “behavioral anomalies”. Modifying an existing business management game in which investment, financing and produc tion decisions have to be made, we demonstrate how bounded rationality can be quantified and separated into its two components: incomplete information and limited cognitive abilities. The resulting data show that decisions made by participants in this game are strongly influenced by bounded rationality. They also show that both incomplete information and limited cognitive abilities are relevant components of the bounded rationality displayed by players.
Highlights
Business games have long been used to familiarize students with the content of economic courses [1,2,3,4]
We propose that business management games can be used to contribute towards better understanding of agent behaviors, since they provide an inexpensive opportunity to reach beyond existing anecdotal evidence concerning “behavioral anomalies”
Modifying an existing business management game in which investment, financing and production decisions have to be made, we demonstrate how bounded rationality can be quantified and separated into its two components: incomplete information and limited cognitive abilities
Summary
Business (management) games have long been used to familiarize students with the content of economic courses [1,2,3,4]. As a byproduct of students’ learning, a large amount of data accrues. High-quality data can be obtained under controlled conditions and at low cost. Business management games are an especially promising tool to analyze decision making in general and to examine whether and to what extent economic agents make sub-optimal decisions in particular. Sub-optimal decisions can be caused by incomplete information and/ or limited information-processing abilities. They can be understood as a deviation from rational behavior in the sense of inconsistency between individual goals and decisions made by each individual. Simon [5] calls this bounded rationality [6,7]
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