Assumption Of Bounded Rationality Research Articles

Evolutionary analysis of green credit and automobile enterprises under the mechanism of dynamic reward and punishment based on government regulation

To explore the green development of automobile enterprises and promote the achievement of the “dual carbon” target, based on the bounded rationality assumptions, this study constructed a tripartite evolutionary game model of government, commercial banks, and automobile enterprises; introduced a dynamic reward and punishment mechanism; and analyzed the development process of the three parties’ strategic behavior under the static and dynamic reward and punishment mechanism. Vensim PLE (Personal Learning Edition) was used for numerical simulation analysis. Our results indicate that the system could not reach a stable state under the static reward and punishment mechanism. A dynamic reward and punishment mechanism can effectively improve the system stability and better fit real situations. Under the dynamic reward and punishment mechanism, an increase in the initial willingness of the three parties can promote the system stability, and the government can implement effective supervision by adjusting the upper limit of the reward and punishment intensity. Finally, the implementation of green credit by commercial banks plays a significant role in promoting the green development of automobile enterprises.

Social network learning efficiency in the principal–agent relationship

Under the bounded rationality assumption, a principal rarely provides an optimal contract to an agent. Learning from others is one way to improve such a contract. This paper studies the efficiency of social network learning (SNL) in the principal–agent framework. We first introduce the Cobb-Douglas production function into the classic Holmstrom and Milgrom (1987) model with a constant relative risk-averse agent and work out the theoretically optimal contract. Algorithms are then designed to model the SNL process based on profit gaps between contracts in a network of principals. Considering the uncertainty of the agent's labor output, we find that the principals can reach a consensus that tends to result in overcompensation compared to the optimal contract. Then, this study examines how network attributes and model parameters impact learning efficiency and posits several summative hypotheses. The simulation results validate these hypotheses, and we discuss the relevant economic implications of the observed changes in SNL efficiency.

Managers’ Perceptions and Microfoundations of Contract Design

In interfirm exchanges such as contracts, transaction cost economics theory (TCE) argues asset specificity, critical for value creation, poses hazards requiring contractual safeguards. TCE assumes actors have foresight to mitigate these hazards even though specificity is typically hard to observe, suggesting managers’ impressions may be biased. Taking a microfoundational approach, we explore how individual negotiators form perceptions of optimal asset specificity and aggregate them to a firm-level assessment that may be influenced through negotiation. We then explore how managers may actively manipulate their counterpart’s perceptions to maximize their firm’s value capture. We theorize about when this may occur and the implications for contractual governance, value creation/capture, and repeated exchanges – each of which may vary from extant predictions. By applying both an expanded bounded rationality assumption (including cognitive distortions) and net value capture motivation symmetrically, we augment contract design research allowing it to predict when and how managers’ strategic behavior may impact exchange outcomes. As a result, this analysis provides a more nuanced understanding of when contract design may intentionally deviate from efficient governance predictions.

Constraints and incentives in the investment regime: How bargaining power shapes BIT reform

States have increasingly started to terminate and renegotiate their bilateral investment treaties (BITs). Dominant explanations have however overlooked the underlying bargaining dynamic of investment treaty negotiations. This paper argues that while states initially in a weaker negotiating position have the strongest incentives to change their existing BITs, their ability to do so is constrained by their bargaining power. Such states become more likely to demand renegotiation or exit dissatisfying BITs if they have experienced sufficient changes in their bargaining power in relation to the treaty partner. This paper identifies observable implications of the weaker states’ incentives and bargaining power constraints for adjusting their bilateral investment treaty commitments. Leveraging a panel dataset on 2,623 BITs ranging from 1962 to 2019, interaction effects between bargaining power and incentives stemming from rationalist and bounded rationality assumptions about states’ decision-making are analyzed in relation to the occurrence of renegotiations and terminations. The paper finds that change in bargaining power in relation to the treaty partner is an important factor underlying the weaker states’ ability to terminate or renegotiate BITs, contributing to the study of investment regime reform and exit from international institutions.

Essays on duopoly competition with asymmetric firms: Is profit maximization always an evolutionary stable strategy?

We propose both a well-mixed and spatially-structured evolutionary game to analyze the competitive behavior of retail firms in duopolistic markets. Firms from two different populations (high/low efficiency) compete and the available strategies are (i) Profit or (ii) Revenue maximization. Under bounded-rationality assumptions, firms can update their behavior through dynamic learning mechanisms. In addition to a replicator dynamics approach, we develop an Agent-based model to increase realism and to capture possible spatial effects on firms’ strategic behavior. A convergence between the methods is observed and, given specific conditions, Revenue maximization may corresponds to an Evolutionary Stable Strategy (ESS).

How does the Quantity of Disclosed Information Provided by Insurers Affect Entity Behaviors in Internet Insurance Market?: A Study Based on Tripartite Evolutionary Game Analysis between Government, Insurance Companies and Consumers

The emergence of internet insurance provides a new consumption pattern for insurance consumers in the e-commerce era. However, without insurers fulfilling duty of disclosure, consumers’ interests cannot be guaranteed. This paper will analyze the costs and benefits of three parties (i.e. government, insurance companies and consumers) and their strategies regarding information disclosure of insurance products on the internet. Using an evolutionary game model under bounded rationality assumptions, the Nash Equilibrium (NE) and evolutionary stability strategy (ESS) of the system are explored. The results show that (Disclosing, not Regulating, not Complain) is the best ESS and it is consumers’ buying decision not regulation that ultimately compels insurers to disclose enough information. The different current situations in China and Japan are discussed in light of the model, and some measures are suggested to promote the development of internet insurance markets in both countries.

Essays on Duopoly Competition with Asymmetric Firms: Is Profit Maximization Always an Evolutionary Stable Strategy?

We propose both a well-mixed and spatially-structured evolutionary game to analyze the competitive behavior of retail firms in duopolistic markets. Firms from two different populations (high/low efficiency) compete and the available strategies are (i) Profit or (ii) Revenue maximization. Under bounded-rationality assumptions, firms can update their behavior through dynamic learning mechanisms. In addition to a replicator dynamics approach, we develop an agent-based model to increase realism and to capture possible spatial effects on firms’ strategic behavior. A convergence between the methods is observed and, given specific conditions, Revenue maximization may corresponds to an Evolutionary Stable Strategy (ESS).

Forward-looking search during innovation projects: Under which conditions it impacts innovativeness

There is growing research interest in understanding the impact of search and the evaluation of information on markets, customers, and technologies. If search has an explicit future focus, this paper refers to it as forward-looking search. Previous research has focussed on the firm or innovation portfolio level. Little research has investigated whether forward-looking search practices occur during innovation projects and whether they may contribute towards a project's innovativeness. This paper follows the bounded rationality assumption, which views decision makers as lacking complete knowledge and anticipation of the consequences of their decision. The current study posits that project teams must engage in forward-looking search during project development to ensure their project's innovativeness. However, this paper argues that this is only relevant if there is 1) room in project planning to facilitate forward-looking search, 2) slack resources available to implement such changes, and 3) a dynamic external environment. The data on 159 unique innovation projects from the Danish manufacturing industry show that forward-looking search significantly impacts innovativeness. Furthermore, this study finds that project planning and slack resources moderate this relationship, while industry concentration has no moderating influence. These findings suggest that to increase the innovativeness of projects, continuous forward-looking planning should retain room for flexibility and slack budgets for project adjustment during execution.

Paradox of Multi Criteria Decision Making Processes

In the global environment decision makers should considers several aspects. Some of them have contradicted influence, and some aspects are not comparable to others. It leads decision-makers to limited ability of judgment between several aspects. Moreover, in a vibrant world, where technological changes occur in small intervals over time, the considerations of decision makers are changing frequently and dramatically. Thus, decision makers cannot adjust their decision mechanism instantly. This leads us to the need to better understand human decision process. This research presents a new extension of the Information Structure model, which is built using a normative approach in order to understand the mechanisms of multi-criteria decision-making (MCDM) processes. A consequent analysis explains decision-making behavior under the assumptions of bounded rationality. The analysis deals with decision situations, in which it is assumed that a decision-maker cannot formulate a joint utility function constituted from different criteria, which are completely or partially inestimable (intangible). Moreover, the model demonstrates problematic issues of MCDM processes; for example, when the improvement of a service paradoxically leads to a decline in a firm's market share. The model enables implementation of the general informativeness ratio between information structures to such environments. The model is based on the assumption of Bounded-Rationality, that a decision process takes several criteria into account, and handles with a decision-maker that cannot formulate a joint utility function constituted from different criteria. The results of the analysis after applying the model suggest that an optimal solution cannot be obtained; thus, a different approach is proposed – that of optimization subject to rational satisfaction. This approach can be implemented, for example in the design stage of decision support systems (DSS). The method may be implemented for decision situations, in which intangible decision criteria are taken into consideration.

RACIONALIDADE LIMITADA: UMA ANÁLISE DOS MANUAIS DIDÁTICOS DE TEORIA GERAL DA ADMINISTRAÇÃO

O objetivo deste artigo consistiu em analisar como o conceito de racionalidade limitada tem sido tratado nos manuais didáticos de Teoria Geral da Administração, com base em termos de qualidade e aprofundamento. Para tanto, foram utilizados três manuais didáticos disponibilizados pela Biblioteca Central da Universidade Federal Alfa, quais sejam: “Teoria Geral da Administração”, de autoria de Motta e Vasconcelos (Manual A); “Introdução à Administração”, de Chiavenato (Manual B); e “Administração: Teoria e Processos”, dos autores Caravantes, Caravantes e Kloeckener (Manual C). Esses foram observados com base na análise de conteúdo em quatro dimensões definidas a priori: delimitação da abordagem e qualidade das referências; dimensão histórico-concreta; dimensão das relações; e dimensão teórica. Os resultados evidenciaram que todos os manuais apresentaram considerações quanto ao pressuposto de racionalidade limitada e fizeram referência a Simon e Barnard, embora não tenham discutido as obras e suas contribuições de forma mais extensiva. O Manual A foi o mais completo nos eixos de análise aqui expostos. O Manual B se voltou a uma discussão teórica sumarizada e sintética. Já o Manual C definiu e conceituou a racionalidade limitada e foi o único a descrever os tipos de racionalidade apresentados por Simon.

Moving Opportunism to the Back Seat: Bounded Rationality, Costly Conflict, and Hierarchical Forms

We augment transaction cost economics’ bounded rationality assumption with heuristics (framing) and cognitive biases to expand the understanding of hierarchical governance in the theory. In transaction cost economics opportunism traditionally takes the front seat, while bounded rationality is primarily relegated to the support role of invoking incomplete contracts. The theory also suggests that hierarchical governance effectively mitigates opportunism-based transaction costs, making it difficult to explain why hierarchies are not always used. However, when an augmented bounded rationality assumption is incorporated into transaction cost economics, we argue, first, that bounded rationality is a separate source of transaction costs and, second, that these costs are not equally mitigated by all forms of hierarchy. Instead, different hierarchical forms are associated with particular frames and social referents that naturally enhance specific bounded rationality–based conflicts, allowing certain hierarchical f...

Adaptive Selection of Cryptographic Protocols in Wireless Sensor Networks using Evolutionary Game Theory

Game theory applies to scenarios wherein multiple players with contrary motives contend with each other. Various solutions based on Game theory have been recently proposed which dealt with security aspects of wireless sensor networks (WSNs). However, the nodes have limited capability of rationality and evolutionary learning which makes it unfavorable to apply conventional game theory in WSNs. Evolutionary Game Theory (EGT) relies on bounded rationality assumption which is in harmony with the wireless sensor networks characteristics. Based on EGT, authors propose an adaptive security model for WSNs for the selection of cryptographic protocols during runtime. The authors formulate this selection in WSNs with the help of an evolutionary game to obtain the evolutionarily stable strategy (ESS) for the system. In this model, the sensor nodes dynamically adapt their defensive strategies to attain the most efficient defense, corresponding to the attackers’ varied strategies. Further, the simulations convey that the proposed system converges rapidly to the Evolutionary Stable Strategy. Not only the system converges, but also forms a stable system which was verified by deliberately destabilizing the system. Results show that the nodes quickly return to ESS even after perturbation.

Rationality and Psychological Accuracy of Risky Choice Models Based on Option- vs. Dimension-Wise Evaluations

Two experiments were carried out to investigate psychological accuracy of risky choice models related either to classical or bounded rationality assumption. In line with the former, individuals trade-off outcomes and probabilities and choose the option with the highest weighted sum. Cumulative Prospect Theory (CPT) represents such models. In contrast, in models based on bounded rationality assumption, such as Priority Heuristic (PH) or Maximization of Cumulated Probability of Winning (MCPW), there is neither trade-off between payoffs and probabilities nor complex information integration, since choice is based on dimension-wise comparisons. The latter models differ in emphasizing the significance of either the amount or the probability of loss.Since previous findings do not support either hierarchy Experiment 1, in which 208 respondents chose one of four 2-mixed-outcome options, was designed to verify relative importance of amount and probability of loss. In Experiment 2 the relative accuracy of compensatory models based on global evaluations and non-compensatory models based on dimension-wise comparisons was compared. The focus is on reasoning represented by certain classes of models rather than on distinguishing between specific models within a given class. Information search was registered with a modified version of Mouselab Web. Choice fraction and process tracing indices were analyzed.It was found that respondents made more dimension- than option-wise transitions. However, other indices such as the fraction of information searched across options as well as the ratio of searched information about pay-offs and probabilities do not support either model. The choice strategies used by a majority of respondents varied across situations.

An Integrative Model of Attention Load and Its Roles When Solving Complex Problems in Organizations

Both the constraining and enabling forces of attention load interact when decision-makers solve complex problems effectively. Synthesizing strands of educational, cognitive psychology, as well as organization research, we develop a conceptual process framework. It explains the ways in which extrinsic, intrinsic, and germane attention load dynamics shape attention capacity which is necessary for developing a mental model of the problem. In particular, the paper adds internal and external context elements –problem characteristics, frames and support- that influence how attention load unfolds within the problem-solving process. Contributions are intended to be made to attention, problem-solving and decision-making literatures, and to current efforts at making bounded rationality assumptions more humanistic.

Game Behavior Analysis of Social Proportion on Low Carbon Energy Technology Innovation Risk

With the prominence of energy crisis and environmental pollution problem, low carbon energy technology innovation is becoming the key of global economy sustainable development. But, for the particularity of technology, the low carbon energy technology innovation has enormous risk. Therefore proportion of low carbon energy technology innovation risk through social channels slowly becomes the crux to promoting the development of low carbon energy technology innovation. As the core subjects in risk proportion of technological innovation, enterprises and social risk-sharing organizations all start to select and adjust their strategy in exploration and trial and error and to seek equilibrium point of interest, thus form a dynamic game process. In this paper, the premise of bounded rationality assumptions of evolutionary game theory has been used as an analytical tool to construct evolutionary game model of social proportion of technological innovation risk, and thus to the stability analysis for both the main strategy of evolution. Results of the evolutionary game analysis show that the participation of a third promoting force play a decisive role in the operation and development of social proportion system of technological innovation risk, thus this paper raised conceptions and recommendations for the government that they should take part in the risk prevention system of low carbon energy technology innovation as a conductor and coordinator.

"Putting Opportunism in the Back Seat: Bounded Rationality, Costly Conflict and Hierarchical Forms"

TCE and its applications in management research put more emphasis on opportunism than on bounded rationality. By augmenting the bounded rationality assumption to include interpretive limitations, w...

Attending to the Reasons for Attribute Non-attendance in Choice Experiments

This paper focuses on behavioural reasons underlying stated attribute non-attendance in choice experiments. In order to identify and incorporate procedures for dealing with heterogeneous attribute processing strategies, we ask respondents follow-up questions regarding their reasons for ignoring attributes. Based on these statements, we conclude that the standard way of assigning a zero impact of ignored attributes on the likelihood is inappropriate. We find that some respondents act in accordance with the passive bounded rationality assumption since they ignore an attribute simply because it does not affect their utility. Excluding these genuine zero preferences, as the standard approach essentially does, might bias results. Other respondents claim to have ignored attributes to simplify choices. However, we find that these respondents have actually not completely ignored attributes. We argue along the rationally adaptive behavioural model that valid preference information may indeed be elicited in these cases, and we illustrate how recoding of non-attendance statements conditional on stated reasons may be a more appropriate solution than the current standard way of taking stated non-attendance into account.

Group Decision Making Model under Risk Based on Bounded Rationality

To overcome the shortcomings in traditional approaches such as bad satisfaction, bad effectiveness and so on, three key bounded rationality assumptions are proposed firstly, i.e., risky preference is invariable, decision cost is existing, and group cognitive ability is only unbounded rational. After that, an efficient prospect deriving model is presented by data envelopment analysis with assurance region to derive efficient alternatives from inadequate decision information. The presented model is able to reflect the subjective risky preferences of group members and derive efficient alternatives under the premise of existing acquisition costs, and thus it can make the satisfactory and effective decision.

Group Decision Making Model under Risk Based on Bounded Rationality

To overcome the shortcomings in traditional approaches such as bad satisfaction, bad effectiveness and so on, three key bounded rationality assumptions are proposed firstly, i.e., risky preference is invariable, decision cost is existing, and group cognitive ability is only unbounded rational. After that, an efficient prospect deriving model is presented by data envelopment analysis with assurance region to derive efficient alternatives from inadequate decision information. The presented model is able to reflect the subjective risky preferences of group members and derive efficient alternatives under the premise of existing acquisition costs, and thus it can make the satisfactory and effective decision.

BOLHAS RACIONAIS, CICLO DE PREÇOS DE ATIVOS E RACIONALIDADE LIMITADA: UMA AVALIAÇÃO CRÍTICA DOS MODELOS NEOCLÁSSICOS DE BOLHAS ESPECULATIVAS

The objective of this article is to criticize neoclassical models of asset price bubbles and to argue that a general theory of asset price cycles demands the substitution of rational expectations hypothesis for bounded rationality assumption. In order to do that we will initially present the two neoclassical approaches for the problem of asset price bubbles. The first one, based on models of multiple equilibria with rational expectations, take financial markets as competitive and investors's behavior as based on perfect and complete information. In this setting, asset bubbles are a logically possible but unprobable phenomenon since their ocurrence will be associated with problems of dynamic ineficience which are not a relevant problem for most of capitalist economies. The second approach, initially developed by Krugman, take as a starting point the idea that financial market are far from perfect. In fact, these markets have a great number of imperfections as, for example, moral hazard. In this approach, asset price bubbles are the result of trading in assets with low supply-price elasticity as, for example, equities and land. Although this second approach is more realistic than the first, it is not capable to explain in a unified framework the appearance, propagation and burst of the speculative bubble; i.e the phenomenon of asset price cycles. This second approach is only capable to show the conditions for the existence of an asset bubble; but it is not capable to explain the dynamic evolution of the bubble. This question is better adressed by heterodox literature based on the hypothesis of bounded rationality.