Bounded Rationality Perspective Research Articles

Game-theoretic analysis of governance and corruption in China's pharmaceutical industry.

With the rapid development of China's pharmaceutical industry, issues of corruption and regulatory effectiveness have become increasingly prominent, posing critical challenges to public health safety and the industry's sustainable development. This paper adopts a bounded rationality perspective and employs a game-theoretic evolutionary approach to establish a tripartite evolutionary game model involving pharmaceutical companies, third-party auditing organizations, and health insurance regulatory agencies. It analyzes the stable strategies of the parties involved and the sensitivity of key parameters within this tripartite game system. The study reveals that adherence to health insurance regulations by pharmaceutical companies, refusal of bribes by third-party auditing organizations, and the implementation of lenient regulations by health insurance agencies can form an effective governance equilibrium. This equilibrium state contributes to reducing corruption in the pharmaceutical industry, balancing the interests of all parties, and promoting healthy industry development. Pharmaceutical companies must balance compliance costs against the risks of non-compliance benefits while maximizing profits; third-party auditing organizations need to choose between fulfilling their duties and accepting bribes, considering their economic benefits and professional reputation; health insurance regulatory agencies adjust their strategies between strict and lenient regulation to maximize social welfare. The paper suggests enhancing policy support, strengthening compliance supervision, improving audit independence, and adjusting regulatory strategies to optimize governance in the pharmaceutical industry. Additionally, the research highlights the role of collaborative efforts among the three parties in achieving sustainable governance. Furthermore, the study conducts a numerical simulation analysis to demonstrate the impact of various parameters on the evolutionary stability of the system, providing practical insights into the implementation of regulatory policies. This research offers new insights for policy formulation and governance in China's pharmaceutical sector, providing significant reference value for guiding the industry's sustainable development.

Overlapping consensus in pluralist societies: simulating Rawlsian full reflective equilibrium

The fact of reasonable pluralism in liberal democracies threatens the stability of such societies. John Rawls proposed a solution to this problem: The different comprehensive moral doctrines endorsed by the citizens overlap on a shared political conception of justice, e.g. his justice as fairness. Optimally, accepting the political conception is for each citizen individually justified by the method of wide reflective equilibrium. If this holds, society is in full reflective equilibrium. Rawls does not in detail investigate the conditions under which a full reflective equilibrium is possible or likely. This paper outlines a new strategy for addressing this open question by using the formal model of reflective equilibrium recently developed by Beisbart et al. First, it is argued that a bounded rationality perspective is appropriate which requires certain changes in the model. Second, the paper rephrases the open question about Rawlsian full reflective equilibrium in terms of the model. The question is narrowed down by focusing on the inferential connections between comprehensive doctrines and political conception. Rawls himself makes a demanding assumption about which connections are necessary for a full reflective equilibrium. Third, the paper presents a simulation study design that is focused on simplicity. The results are discussed, they fit with Rawls’s assumption. However, because of the strong idealisations, they provide a useful benchmark rather than a final answer. The paper presents suggestions for more elaborate study designs.

Empowering retailers: A bounded rationality perspective to enhancing omnichannel journey satisfaction

We draw on bounded rationality theory to examine the drivers of omnichannel journey satisfaction. By examining the omnichannel journey as a holistic experience (as opposed to a sequence of individual channel decisions), our research demonstrates that maximisation as a goal can increase shoppers' satisfaction with the omnichannel journey. Findings of three studies lend support to the notion that shopping mindsets should not be taken exclusively as an individual trait, but also as a mindset state which can be situationally activated within the omnichannel setup. We show that omnichannel shoppers should be encouraged to maximise their decision outcomes and to embrace the superior enjoyment and achievements that the omnichannel experience has to offer. In contrast to past research, we recommend that looking back into individuals' specific channel choices, channel use and shopping journey's configuration should be discouraged. We discuss theoretical and practical implications for researchers and retailers alike.

Dynamic strategies of horizontal low-carbon supply chains under double carbon policies: A bounded rationality perspective

Under double carbon policies, this study proposes a horizontal low-carbon supply chain involving a traditional manufacturer and a low-carbon manufacturer. On this basis, we develop two scenarios, which differ in whether the traditional manufacturer adopts green technology or not. Considering bounded rationality, we explore the dynamic production and emission reduction strategies in the two scenarios by using game theory and chaos theory. The results show that manufacturers’ adjustment speeds have great effects on equilibrium strategies, with chaos and other complex phenomena emerging in certain cases. For both manufacturers, the increase of the emission reduction adjustment speed shrinks stable regions of their production strategies, and an excessive adjustment strategy always harms its own profit but brings benefits to the competitor. By comparing the results of the two scenarios, the conditions for the traditional manufacturer to adopt green technology can be concluded as a relatively low unit emission reduction cost and a suitable low-carbon competitive intensity. When these conditions are satisfied, the production, emission reduction, and profit of the low-carbon manufacturer will all decrease. Finally, we provide useful guidance in promoting low-carbon development.

Nudge citizen participation by framing mobilization information: a survey experiment in China

Despite many efforts to promote citizen participation, it is necessary to keep exploring more efficient mobilization ways in developing countries. From the bounded rationality perspective, the authors conducted a survey experiment in China to explore the effects of a public–personal interest frame and a gain–loss frame on citizen participation. The results revealed that emphasizing public interests attracted more citizen participation than emphasizing personal interests did, and citizens were more mobilized by losing benefits due to non-participation than they were by gaining benefits due to participation. Moreover, the public–personal frame interacted with the gain–loss frame to influence citizen participation. Specifically, people were more likely mobilized to participate by public interests than by personal interests in a gain frame but not in a loss frame. These findings contribute to the understanding of bounded rationality in citizen participation and indicate the potential of framing effect to nudge citizen participation.

The Effect of Travel-Chain Complexity on Public Transport Travel Intention: A Mixed-Selection Model

With urban expansion and traffic environment improvement, travel chains continue to grow, and the combination of travel purposes and modes becomes more complex. The promotion of mobility as a service (MaaS) has positive effects on facilitating the public transport traffic environment. However, public transport service optimization requires an accurate understanding of the travel environment, selection preferences, demand prediction, and systematic dispatch. Our study focused on the relationship between the trip-chain complexity environment and travel intention, combining the Theory of Planned Behavior (TPB) with travelers' preferences to construct a bounded rationality theory. First, this study used K-means clustering to transform the characteristics of the travel trip chain into the complexity of the trip chain. Then, based on the partial least squares structural equation model (PLS-SEM) and the generalized ordered Logit model, a mixed-selection model was established. Finally, the travel intention of PLS-SEM was compared with the travel sharing rate of the generalized ordered Logit model to determine the trip-chain complexity effects for different public transport modes. The results showed that (1) the proposed model, which transformed travel-chain characteristics into travel-chain complexity using K-means clustering and adopted a bounded rationality perspective, had the best fit and was the most effective with comparison to the previous prediction approaches. (2) Compared with service quality, trip-chain complexity negatively affected the intention of using public transport in a wider range of indirect paths. Gender, vehicle ownership, and with children/without children had significant moderating effects on certain paths of the SEM. (3) The research results obtained by PLS-SEM indicated that when travelers were more willing to travel by subway, the subway travel sharing rate corresponding to the generalized ordered Logit model was only 21.25-43.49%. Similarly, the sharing rate of travel by bus was only 32-44% as travelers were more willing to travel by bus obtained from PLS-SEM. Therefore, it is necessary to combine the qualitative results of PLS-SEM with the quantitative results of generalized ordered Logit. Moreover, when service quality, preferences, and subjective norms were based on the mean value, with each increase in trip-chain complexity, the subway travel sharing rate was reduced by 3.89-8.30%, while the bus travel sharing rate was reduced by 4.63-6.03%.

Promoting dynamic pricing implementation considering policy incentives and electricity retailers’ behaviors: An evolutionary game model based on prospect theory

As one method of demand-side management, dynamic pricing benefits society by promoting power supply and demand balance, renewable energy consumption, and market efficiency improvement. However, due to the novelty of dynamic pricing, it has not been well promoted among consumers in China. The regulators, electricity retailers and consumers all have a critical role to play in promoting dynamic pricing, and they have both common interests and mutual constraints. Coordinating the interests of the three parties will facilitate the promotion of dynamic pricing. This study establishes an evolutionary game model for these three parties from a bounded rationality perspective and investigates each party's dynamic evolution strategy. The findings indicate that the subsidy from the regulator, the cost of promoting dynamic pricing, the electricity price level, the consumer's responsiveness, and psychological factors all influence the promotion of dynamic pricing. The findings suggest policy recommendations for accelerating the development of dynamic pricing and a healthy electricity retail market.

Competition from informal firms and product innovation in EU candidate countries: A bounded rationality approach

This study extends the literature that has investigated firms' readiness to confront competition from informal (unregistered) firms by responding through intensified product innovation activities. Drawing on the bounded rationality perspective, we unravel new insights into the relationship between the threat from informal competitors and product innovation by identifying two external contingencies (intellectual property rights protection and regulatory quality) and two internal contingencies (export intensity and top manager's sector experience). In this way, the study acknowledges the immense differences that exist across developing markets, focusing on post-communist societies characterized with a medium level of economic development, limited market size, and weak institutional development. An empirical prototype of this type of context is exemplified in EU candidate countries. Therefore, our model estimates the effect of the threat from informal competitors on product innovation by testing firm-level data from five countries with EU candidate status. Our findings show that direct and positive relationship between the threat from informal competitors and product innovation is strengthened when: 1) intellectual property rights protection is weaker, 2) regulatory quality is higher, 3) the firm is an intesive exporter, and 4) the firm's top managers have less experience.

Pension behavior and policy

Individuals benefit from smoothing consumption over time, a fact well illustrated in the domain of pension spending. But many potential benefits from consumption smoothing are lost in practice due to an overconsumption in the present and near-future compared to the far-future, which is known as “present bias”. Present bias’s impact on pensioner welfare could potentially be exacerbated by international trends toward greater pension freedoms. However, actual pension spending decisions can involve sudden transitions into bankruptcy, which are hard to reconcile even with behavioral hyperbolical discounting models that are traditionally used to explain present bias. We consider an intertemporal consumption problem from a time-consistent but bounded rationality perspective. In this limited foresight framework, an individual exponentially discounts utilities (at constant rate, r) for a finite amount of time (until S) but ignores utilities that occur beyond that (up to T). The consumption paths implied by this simple model involve sudden transitions into bankruptcy at time S, resembling observed patterns from an international dataset on pension spending. Furthermore, this perspective suggests that individuals could be helped to appropriately smooth consumption over time via policy interventions directed at extending their level of foresight.

Antecedents and performance effect of managerial misperception of institutional differences

This study examines managerial misperception of institutional differences between countries—the deviation of managers’ perceived differences from actual ones. Drawing on a bounded-rationality perspective and an information-based view, we theorize about the effect and contextual antecedents of managerial misperception of country differences. Examining data from 186 managerial assessments confirms a negative relationship between managerial misperception and firms’ host-country performance, providing evidence for the relevance of this construct for international-management research and practice. Furthermore, in line with our theory, we find support for a direct impact of variables determining information-access opportunity and information-processing complexity as contextual antecedents of managerial misperception.

The complementary role of affect-based and cognitive heuristics to make decisions under conditions of ambivalence and complexity.

Little is known about the interplay between affective and cognitive processes of decision making within the bounded rationality perspective, in particular for the debate on adaptive decision making and strategy selection. This gap in the knowledge is particularly important as affect and deliberation may direct preferences in opposite directions. How do decision makers solve such dissonance? In this paper, we address this question by exploring the use of integral affect as a choice heuristic in comparison with and in conjunction to “take the best,” and weighted addition of attributes (WADD). We operationalize theories of reliance on affect in choice through a "Take the emotionally best" algorithm. Its predictive power is experimentally tested against other models, including mixed-sequential cognitive/affective procedures. We find that individual decisions are better predicted by a sequential combination of "Take the emotionally best" and "Take the best" with a slight dominance of the former. Conditions of cognitive/affective ambivalence, low discrimination ability and high complexity provide the cognitive architecture where such blended choice strategies predict decisions more precisely. This implies that reliance on integral affect may precede the use of cognitive cues following an ecological rationality perspective rather than supporting a kind of competition between affect and cognition as implied in current literature.

Incentivizing supplier participation in buyer innovation: Experimental evidence of non-optimal contractual behaviors

Original equipment manufacturers increasingly involve suppliers in new product development (NPD) projects. How companies design a contract to motivate supplier participation is an important but under-examined empirical question. Analytical studies have started to examine the optimal contract that aligns buyer-supplier incentives in joint NPD projects, but empirical evidence is scarce about the actual contracts offered by buying companies. Bridging the analytical and empirical literature, this paper compares optimal contracting derived from a parsimonious analytical model with actual behaviors observed in an experiment. In particular, we focus on how project uncertainty, buying company effort share, and buyer risk aversion influence three contractual decisions: total investment level, revenue share and fixed fee. Our results indicate significant differences between the optimal and actual behaviors. We identify various types of non-optimal contractual behaviors, which we explain from a risk aversion as well as a bounded rationality perspective. Overall, our findings contribute to the literature by showing that (1) the actual contractual behaviors could differ significantly from the optimal ones, (2) the actual contract design is sensitive to changes in project uncertainty and buying company effort share, and (3) the significant roles of risk aversion and bounded rationality in explaining the non-optimal contractual behaviors.

Bounded Rationality Based Algorithms of the Mind Construction <br/>—Situated Cognition as Calculating Media

The solvability of algorithms of the mind is a study that has been discussed through the whole development process of Cognitive Science Philosophy. When the dichotomy theory for the study of mind algorithms went into a dilemma, a new research approach appeared. This new approach is constructed on the basis of situated cognition and analyzed through the bounded rationality perspective, i.e. the mind algorithms formula is symbolized through formalized, logically demonstrated, and representative situated cognition. This method realizes a formulation of human mind algorithms which is the rational reflection of the organic and co-existence of the mind, body and the external world.

When Do Entrepreneurs Accurately Evaluate Venture Capital Firms’ Track Records? A Bounded Rationality Perspective

There has been substantial research on the value of young firms engaging high-quality partners. This literature, as well as the broader firm reputation literature, has tended to assume that individ...

Bounded Rationality in Transposition Processes: The Case of the European Patients’ Rights Directive

Studies explaining the timeliness and correctness of the transposition of EU directives into national legislation have provided rather inconclusive findings. They do not offer a clear-cut prediction concerning the transposition of the patients’ rights directive, which is one of the first that concerns the organisation and financing of national healthcare systems. This article applies the perspective of bounded rationality to explain (irregularities in) the timely and correct transposition of EU directives. The cognitive and organisational constraints long posited by the bounded rationality perspective may affect the commonly employed explanatory factors of administrative capacities, misfit and the heterogeneity of preferences among veto players. To prevent retrospective rationalisation of the transposition process, this paper traces this process as it unfolded in Denmark and the Netherlands. As bounded rationality is apparent in the transposition processes in these relatively well-organised countries, future transposition studies should devote greater consideration to the bounded rationality perspective.

Reasons for middle‐aged women in Taiwan to choose hysterectomy: a qualitative study using the bounded rationality perspective

To explore women's perspectives on deciding to undergo hysterectomy for benign conditions based on physicians' recommendations and the women's own judgement. Hysterectomy is the second most common surgical procedure worldwide. Although most hysterectomies are elective, physicians may recommend treatment that involves a loss of sexuality or ovary removal, creating a difficult choice for women. Qualitative, in-depth interview A purposive sample of 17 women was recruited. The women had decided to undergo hysterectomy after the diagnosis of uterine fibroids. All these women had already decided not to have more children. Data were collected by in-depth interviewing, and content analysis was used to analyse the data. Our study revealed five themes: release from stress, inescapable fate, positive support, hoping for peace of mind and sense of trust. The participants felt that mental and physical health were the most important considerations, noting that when women no longer want children, a uterus is useless. The women believed that they retained their womanhood, even without a uterus, and were satisfied with the outcomes of their hysterectomy decisions. Our findings might serve as educational and counselling reference materials for healthcare providers, ensuring that women receive appropriate care quality and have their needs met. Healthcare providers can then maximise women's empowerment, deepen their awareness of body image and their concept of self-care and help them to clearly perceive their own concerns and needs so that they can make suitable decisions.

Headquarters involvement and efficiency of innovation development and transfer in multinationals: A matter of sheer ignorance?

We compare two theoretical perspectives on the knowledge situation of headquarters (HQ) in multinational corporations: the bounded rationality perspective and the sheer ignorance perspective. We claim that these perspectives lead to different expectations when it comes to HQ's role and the effects of HQ involvement in innovation processes at the subsidiary level. More specifically, we examine the impact of HQ involvement on the efficiency of 71 subsidiary innovation projects. The findings show that HQ involvement in innovation development and transfer has a negative rather than a positive impact on efficiency in both processes. We contribute by showing and suggesting that the sheer ignorance perspective might provide a more accurate portrayal of the HQ knowledge situation than the bounded rationality perspective does. This study furthers understanding of the role of HQ in the contemporary, knowledge-creating multinational.

Understanding and knowledge of credit cost and duration: Effects on credit judgements and decisions

Financial capability requires understanding measures of consumer credit cost and using them appropriately in credit judgements and decisions. In three studies, UK adults’ understanding and use of credit cost and duration information were investigated from a bounded rationality perspective. Study 1, part of a representative survey of UK adults ( N = 1000), found that when presented with annual percentage rate (APR) participants significantly overestimated the total cost (TC) of a 12-month loan. In Study 2, loan duration and APR were varied in an independent groups experiment ( N = 242). Bank customers’ TC estimates were sensitive to both loan duration and APR but TC was again substantially overestimated. Study 3 was an independent groups experiment investigating the effect of APR and TC information on credit decisions ( N = 241). APR often influenced decisions between loans varying in duration and monthly repayment, but this effect was moderated by TC information. It was concluded that: (1) people generally misunderstand the relation between APR and TC; and (2) although APR information can have a large effect on credit decisions, its effect is either attenuated or amplified by TC information. The findings are interpreted in terms of a ‘take the best APR’ heuristic and a dual mental account model of instalment credit. Recommendations for improving credit information provision and financial education are offered.

Intuition in Judgment and Decision Making: Extensive Thinking Without Effort

We claim that intuition is capable of quickly processing multiple pieces of information without noticeable cognitive effort. We advocate a component view stating that intuitive processes in judgment and decision making are responsible for information integration and output formation (e.g., preference, choice), whereas analytic thinking mainly guides input formation such as search, generation, and change of information. We present empirical evidence corroborating this notion and show that integration of information and preference formation works without cognitive control and is unconstrained by the amount of encoded information and cognitive capacity. We discuss the implications of our findings for the bounded rationality perspective and the multiple strategy approach to judgment and decision making. Finally we outline a connectionist framework for integrating intuitive and analytic thought processes.

Managerial cognition: the sources of sustainable competitive advantage in hypercompetition

PurposeBased on the theory of bounded rationality, the purpose of this paper is to explore the role played by top managerial management cognition in firms' efforts to obtain and maintain competitive advantage in a dynamic environment.Design/methodology/approachA research framework of the relations between environment changes, management cognition, strategic actions, organizational capability evolution and organizational performance is built. Data are collected through interviews, internal documents, and external documents and consequently a qualitative database is built to construct a causal map between environment, cognition, strategic actions, and organizational capability. Then by applying this causal map, a case study analysis of Vanward Group is carried out to explore its management cognition, strategic actions, and organizational capability in a dynamic environment.FindingsThe research propositions were tested and confirmed that top managerial management cognition is of bounded rationality and in dynamic environment it exerts direct and critical effect on their firms' strategic actions and organizational capability. Further discussion is extended to the roles played by institutional factors in organizational strategic decision process and the roles of top management in organizational dynamic capability.Research limitations/implicationsThe generalizability of this paper's conclusions to other firms is to be tested by large sample quantitative research.Practical implicationsThe research confirms the bounded rationality perspective in strategic management, and explores in depth the formation, evolution, and functions of top management cognition in a dynamic environment. It also emphasizes the non‐economic factors related to the continuous acquisition and maintenance of competitive advantages in a dynamic environment.Originality/valueThe paper releases the economic assumptions underlying industrial structure theory and resource‐based views by emphasizing the effect of top management cognition on organizational strategic actions and organizational capabilities. It further enriches the institution‐based view by illustrating how institutional environment affects top management cognition and consequently affects the changes in organizational strategic actions and organizational capability. Thus, the institutional context for organizational strategic decision making is emphasized. The paper contributes to research in dynamic capability by emphasizing top management roles in developing dynamic capability.