Theory Of Bounded Rationality Research Articles

Use of bounded rationality theory to understand participation of women in Islamic microfinance

The prime objective of this paper is to understand the participation behaviour of rural poor women in Islamic microfinance pursued with an aim to build up successful micro-entrepreneurship. In so doing, the study employs a new theory of boundedly rational planned behaviour (TBRPB) to formulate a research framework. Data (n = 390) were collected from the women borrowers of an Islamic microfinance institute, the Rural Development Scheme (RDS) in Bangladesh, following a simple random sampling procedure. Structural equation modelling (SEM) was utilized to analyse the data through AMOS software. The findings suggest that the attitudes and normative perceptions of the rural women are highly significant in influencing their subjective rational plan towards participation in the institute, which has been effectively helping build up successful micro-entrepreneurship.

Gun Politics & Policymaking under Uncertainty:The Jolt of Marauding Terrorist Firearm Attacks

Recent marauding terrorist firearm attacks have acted as an environmental jolt, mobilizing policymakers worldwide to consider changes in policing strategies that are likely to shape public safety, governance, society, businesses, communities, and other organizations, impacting the lives of individuals in society. This article uses a mixed-methods study to highlight the key philosophical, ethical and fiscal questions embedded within this policy debate, in particular, whether to arm all London Metropolitan Police Service officers with guns. Through this exploration, the paper takes up the 2018 Academy of Management theme to contribute to a safer, more inclusive society by joining the dialogue in organization studies about decision-making during times of uncertainty and makes theoretical extensions by linking environmental jolt and bounded rationality theory with current political debates about an ‘Americanisation’ of UK policies.

Behavioural research and corruption: A new promise for governments?

This essay explores the link between corruption and behavioural economics. The findings of behavioural economics may widen the analysis of corruption and improve strategies to face it. The first part describes bounded rationality theory, according to which human cognitive capacities are not infinite and individuals are affected by behavioural biases and heuristics. The second part focuses on specific biases, limitations and motivations—such as misperception of risks, context, trust, moral sentiments and others—that can influence criminal behaviour. The third section illustrates how these new behaviourally informed regulatory approaches can be integrated into the regulatory State. Finally, the essay attempts to provide some suggestions for regulators, including some positive and negative points about the behavioural approach.

Pension provision by small employers in Ireland: an analysis of Personal Retirement Savings Account (PRSA) using bounded rationality theory

Abstract This paper applies a model of bounded rationality to study small employers’ decision-making on pension provision in Ireland. Personal Retirement Savings Account (PRSA) pension products were intended to provide inexpensive, flexible pension options, particularly targeted towards small enterprises. After 10 years of their introduction, evidence suggests that the PRSA pension product has little impact on pension coverage in Ireland and the employees of small organisations are least likely to be the members of pension schemes. Drawing on the theory of bounded rationality and a review of the legislative and institutional context within which small employers in Ireland make decisions on pension provision, this paper presents a pension decision-making model of small employers based on the work of Simon (1983). A range of propositions are set out for empirical research to examine pension provision practices of small employers relating to whether they have a tendency to organise rather than sponsor PRSAs for their employees. The implications for theory, research and policy are explained.

Job Satisfaction in the Civil Service Department of Lithuania: Analysis of Extrinsic and Intrinsic Factors

Academic literature identifies job satisfaction as an important determinant of effective organisational performance, though the contemporary attention of theorists and practitioners for job satisfaction of individuals working in Lithuanian civil service is still fragmented. The article discusses the concept of job satisfaction, examines the significance of various motivational factors for civil servants’ job satisfaction and analyses the determinants of job satisfaction in the Civil Service Department of Lithuania. The empirical analysis is based on the results of quantitative research conducted in 2017. The research results revealed that job satisfaction of individuals working in the above mentioned institution is more determined by intrinsic rather than extrinsic motivational factors. Higher levels of job satisfaction are associated with sense of achievement arising from work, interesting, exciting job content and adequate promotional opportunities. The research finding also proposed the challenging trend indicating the negative correlation between job satisfaction and possibilities for to grow personal skills. This paradox is possibly explained by Simon’s bounded rationality theory, as well as by methodological specificity, and eventually opens wide platform for further research in public sector. DOI: http://dx.doi.org/10.5755/j01.ppaa.16.3.19337

Behavior of fund managers in Malaysian investment management industry

PurposeThis paper aims to explore the relevance of bounded rationality to the practice of institutional investors in Malaysia. Understanding institutional investor behavior is important, as it can determine the asset prices and consequently the market behavior.Design/methodology/approachA set of questionnaires is used to solicit information regarding the understanding and practical application of behavioral finance theories and strategies among fund managers in the Malaysian investment management practice. In the process, bounded rational theory is aimed to be validated. Fund managers’ possible bounded rational behavior is assessed with reference to their investment management approaches and strategies right from individual beliefs and acquisition of information, as well as investment management and strategies used.FindingsThe findings lend support to the notion that institutional investors too, being normal human beings, are expected to think and behave in a boundedly rational manner as postulated in bounded rational theory. The sources of bounded rationality are individual, institutional and social forces. Thus, portfolio trading and investment management strategies are exposed to wide varieties of behavioral risks. Despite the notions that behavioral risks are real and the impact on fund performance could be pervasive, fund managers’ self-awareness regarding control and institutional readiness to govern behavioral risks in investment practices is still low.Research limitations/implicationsEmpirical evidence drawn in the current paper is subjected to small sample size and specific focus on Malaysian context. Despite this limitation, the sample is statistically sufficient and provides a fair representation, as well as quality opinions, of fund manager’s investment management behavior in Malaysia. This research provides valuable implications to practitioners (fund managers) and regulators (investment management and capital market policymakers). In practice, the current study draws some practical ideas, especially for buy-side institutional investors, on the source and impact of behavioral biases on fund management practices and performance. For regulators, this research highlighted the needs and possible ways to regulate these behavioral risks.Originality/valueThe current paper provides new insights on the theory and practice of the institutional investor. In theory, this research provides evidence of bounded rationality of institutional investor behavior, practicing in the asset management industry in the emerging markets of Malaysia. This evidence lends support to the validity of the bounded rationality theory in explaining institutional investor behavior. In practice, thisresearch provides new insights on the relevance of behavioral finance perspectives and strategies in the asset management industry practice and policy.

A Case-Study of Financial Literacy and Wellbeing of Immigrants in Lloydminster, Canada

The sources of financial literacy education accessible to immigrants to Canada and the link between immigrant’s financial literacy and financial decisions could impact their welfare and Canada’s population growth negatively. The purpose of this qualitative exploratory case study was to explore sources of immigrant’s financial literacy education immediately they arrive Canada and the link between their financial knowledge and financial decisions. The life cycle hypothesis, rational choice theory, and bounded rationality theory grounded the study. Data collection from the purposeful sample included semi-structured face-to-face interviews with 13 adult immigrants and a focus group discussion with 6 adult immigrants, all of whom lived, worked, or owned a business in the city of Lloydminster. Data was collected between December 12 and December 19 2016. Using Yin’s 5 step data analytic procedure, the 6 themes that described the pattern between immigrant’s wellbeing and their financial literacy levels are social institutions, economic institutions, pressure impacting financial decisions, credit facility impacting financial decisions, emotions impacting financial decisions, and discount deals impacting financial decisions. The results from this qualitative study might trigger positive social change if immigrants to Canada develop their financial literacy levels and stay committed to making sensible financial decisions.

Psychoanalysis of Investor Irrationality and Dynamism in Stock Market

This article provides an alternative theoretical framework to explain investors’ irrational behaviours in finance theories (mainly asset pricing) based on psychoanalysis approach. This is an approach used by psychoanalysts and psychiatrists to investigate human minds. The investigation is facilitated by interdisciplinary theories, namely (a) bounded rationality theory which differentiates intuition and reasoning, (b) prospect theory which explains framing and valuation and (c) theory of mind which divides behavioural risks into cognitive heuristics and affective biases. These theories collectively explain the origin of irrational behaviours. Additionally, (d) the ABC (Activating–Beliefs–Consequences) model is also used to interpret the causes and effects of irrational behaviours on investors and market behaviour. Last theory, (e) the dual system model of preference is used to conceptualize the bounded human mind that contains both rational and irrational elements. The proposed theoretical framework provides the theoretical foundation of investors’ irrational origin, forces, causes as well as their systematic effects on investors, asset prices and stock market behaviours dynamism. The validity of the theoretical framework is supported by empirical test using a representative of emerging stock market data and behavioural risk proxies.

Understanding pension communications at the organizational level: Insights from bounded rationality theory & implications for HRM

This paper applies concepts from bounded rationality theory to develop an integrative model to understand how pension scheme structure and pension scheme communication impact pension participation and contribution rates at organizational level. Organizational pension policies create framing effects that can have intended and unintended consequences depending on how they impact on employees' cognitive processes. Organizational pension communication policy impacts employee pension outcomes through the interaction between fast-acting, automatic System 1 and deliberative, calculating System 2 that typically endorses and occasionally overrides System 1 judgments. System 1 exhibits mental short-cuts (heuristics) and systematic biases. The likelihood of a System 2 challenge to System 1 depends on the personal, socio-demographic and economic characteristics of the individuals within the workforce. We propose that those within the HR function, who understand framing effects, can develop pension policies that positively affect pension plan outcomes at the organization level, specifically the pension participation and average contribution rates, using a combination of policies that in some cases promote System 2 endorsement and in other cases, System 2 engagement.

THE CONTRIBUTION OF J. M. KEYNES TO THE ANALYSIS OF THE PSYCHOLOGICAL MOTIVES OF ECONOMIC BEHAVIOR

The article examines the contribution of John Maynard Keynes to the study of the psychological motives of economic behavior. The origins of the analysis of the psychological motives in economics before Keynes are reviewed. The relative importance of rational and irrational motives of economic behavior in the Keynesian theory is analyzed. It is shown that Keynes's analysis of the behavior of the economic agents under uncertainty and the lack of information contributed to the elaboration of the bounded rationality theory by Simon. The article also describes the input of Keynes to the formation of a new «Keynesian» model of human behavior, which implies the importance of expectations, taking into account the psychological and social factors of economic behavior. The main psychological tendencies in the actions of the consumers and investors described by Keynes (the basic psychological law, liquidity preference, the influence of the «market psychology» on the investor's decisions) and their relevance nowadays are examined. The article shows further development of the ideas of Keynes in the Akerlof and Shiller's theory of animal spirits and in the financial instability hypothesis of Minsky. It also gives a description of a confidence multiplier, introduced by Akerlof and Shiller, and shows how the cosumers' confidence can be measured nowadays. Besides, the article stresses that the study of the psychological motives of economic behavior, undertaken by Keynes, contributed to the development of such new disciplines at the interface between the economy and psychology as the economic psychology and behavioral economics.

Evaluating the role of behavioral factors and practical constraints in the performance of an agent-based model of farmer decision making

Farmer decision making models often focus on the behavioral assumptions in the representation of the decision making, applying bounded rationality theory to shift away from the generally criticized profit maximizer approach. Although complex on the behavioral side, such representations are usually simplistic with respect to the available choice options in farmer decision making and practical constraints related to farming decisions. To ascertain the relevance of modeling different facets of farmer decision making, we developed an agent-based model of farmer decision making on crop choice, fertilizer and pesticide usage using an existing economic farm optimization model. We then gradually modified the model to include practical agronomic constraints and assumptions reflecting bounded rationality, and assessed the explanatory power of the added model components. The assessments were based on comparisons to the real world data and to the results of the previous model stages, and included two model versions differing with assumptions on the farmers' rationality. Thus, we assessed the sensitivity of the model to its behavioral assumptions. The results indicated that contrary to expectations, implementation of the practical constraints improved the model performance more than the modifications in the behavioral assumptions.

認知的満足化

As the scope of reinforcement learning broadens, the number of possible states and of executable actions, and hence the product of the two sets explode. Often, there are more feasible options than allowed trials, because of physical and computational constraints imposed on the agents. In such an occasion, optimization procedures that require first trying all the options once do not work. The situation is what the theory of bounded rationality was proposed to deal with. We formalize the central heuristics of bounded rationality theory named satisficing. Instead of the traditional formulation of satisficing at the policy level in terms of reinforcement learning, we introduce a value function that implements the asymmetric risk attitudes characteristic of human cognition. Operated under the simple greedy policy, the RS (reference satisficing) value function enables an efficient satisficing in K-armed bandit problems, and when the reference level for satisficing is set at an appropriate value, it leads to effective optimization. RS is also tested in a robotic motion learning task in which a robot learns to perform giant-swings (acrobot). While the standard algorithms fail because of the coarse-grained state space, RS shows a stable performance and autonomous exploration that goes without randomized exploration and its gradual annealing necessary for the standard methods.

Commentary: Extensional Versus Intuitive Reasoning: The Conjunction Fallacy in Probability Judgment.

Commentary: Extensional Versus Intuitive Reasoning: The Conjunction Fallacy in Probability Judgment.

Fenomenologie jako základ ekonomické metody

In recent years, economic approach to human behavior has been challenged by contributions of cognitive science under the name of behavioral economics. As a result, two methodological strands in economics discord with each other: objectivistic (naturalistic) approach refuses the role of motivations in human behavior, adopting methods of natural science; subjectivistic (interpretative) approach, on the other hand, takes the teleological structure of human action as its corner stone. It is argued that position of the latter (esp. rational choice theory) has been undermined because it builds upon primitive version of human teleological structure. The paper shows that phenomenology offers a promising solution. Phenomenology identifies typical, invariant structures of human action and social world, with various degrees of their anonymity. If economic approach is founded on those structures adequately, then both rational choice theory and bounded rationality theories become compatible, as they differ in their degrees of anonymity only; they both belong to the body of (subjectivistic) economic approach to human behavior.

Bounded Rationality and Limited Datasets

Theories of bounded rationality are typically characterized over an exhaustive data set. How does one tell whether observed choices are consistent with a theory if the data is incomplete? How can out-of-sample predictions be made? What can be identified about preferences? This paper aims to operationalize some leading bounded rationality theories when the available data is limited, as is the case in most practical settings. We also point out that the recent bounded rationality literature has overlooked a methodological pitfall that can lead to 'false positives' and 'empty' out-of-sample predictions when testing choice theories with limited data.

Phenomenology as a Foundation of Economic Method

In recent years, the economic approach to human behavior has been challenged by contributions of cognitive science. Thus two methodological strands in economics disagree with each other: the objectivistic approach favors the methods of natural science; the subjectivistic approach takes the teleological structure of human action as its cornerstone. It is argued that the position of the latter has been undermined because it builds upon the primitive version of the teleological structure. Its deeper analysis is needed, which is the task for economic phenomenology: it identifies invariant pragmatic structures of human action, with various degrees of their anonymity. If the economic approach is founded on those structures adequately, then both rational choice theory and bounded rationality theories become compatible, as they differ in their degrees of anonymity only; they both belong to the body of the (subjectivistic) economic approach to human behavior.

Research of Application of Bounded Rationality on Virtual Soldier Modeling

Rational theory of finite virtual soldiers on the concept of bounded rationality, bounded rationality theory analysis of the added features of the virtual soldiers, given the limited rationality based on the overall framework of the virtual soldiers, using the model framework to make the virtual real soldiers, soldiers with similar perception, decision making and exercise capacity, for the subsequent implementation of the modules laid the foundation framework.

A decision support method, based on bounded rationality concepts, to reveal feature saliency in clustering problems

In many real-life data mining problems, there is no a-priori classification (no target attribute that is known in advance). The lack of a target attribute (target column/class label) makes the division process into a set of groups very difficult to define and construct. The end user needs to exert considerable effort to interpret the results of diverse algorithms because there is no pre-defined reliable “benchmark”. To overcome this drawback the current paper proposes a methodology based on bounded-rationality theory. It implements an S-shaped function as a saliency measure to represent the end user's logic to determine the features that characterize each potential group. The methodology is demonstrated on three well-known datasets from the UCI machine-learning repository. The grouping uses cluster analysis algorithms, since clustering techniques do not need a target attribute.

Bounded Rationality and Institutional Change

The present paper adopts Simons bounded rationality theory in order to explain path dependence of regimes and institutions. Further, we will analyse in a theoretical model the conditions under which path dependence may be broken and new, more efficient institutions that promote growth may emerge. Lastly, we will apply our model to a historical case, the prototype democracy, ancient Athens during the 5th century B.C.

Identifying consumer decision‐making strategies using alternative methods

PurposeThe research aims to investigate consumer decision‐making strategies using quantitative and qualitative methods. Two decision theories are contrasted: neoclassical theory proposes compensatory and optimising strategies with complete information, whilst bounded rationality theory suggests simplified and non‐compensatory strategies. The research assesses whether these theories will explain consumers' decision‐making strategies when completing a survey, and the extent to which qualitative and quantitative methods provide convergent validity of the explanations.Design/methodology/approachA computer‐based choice survey was administered to university students and staff. The choice task was to select a preferred potato from sets of potatoes with different attributes. Information for each attribute was initially hidden by a “card”; respondents had to reveal the information by clicking on the card with the computer mouse. The survey recorded the order of mouse clicks, providing quantitative data on decision strategies. Some respondents were also interviewed about their decision processes, which provided qualitative data on strategies.FindingsRespondents left over one‐fifth of the cards unopened. Interview findings confirmed that respondents generally did not obtain all available information and used simplified strategies. The qualitative data were generally validated by the quantitative data and provided improved descriptions of decision strategies.Research limitations/implicationsSome qualitative data can not be verified with quantitative data, and the convenience sample of university students and staff may limit the generalisability of the findings.Originality/valueThe paper suggests that consumers may not use all available information when making choices. The neoclassical assumption of full information may therefore not hold. It also indicates that probing decision strategies with qualitative questioning provides accurate data and better details than could be obtained quantitatively.