Bounded Rationality

Maps of Bounded Rationality: Psychology for Behavioral Economics


The work cited by the Nobel committee was done jointly with Amos Tversky (1937-1996) during a long and unusually close collaboration. Together, we exploredthe psychology of intu- itive beliefs and choices and examined their bounded rationality. HerbertA. Simon(1955, 1979) had proposed much earlier that decision makers should be viewed as boundedly rational, and had offered a model in which utility maxi-mization was replaced by satisficing. Our re- search attempted to obtain a map of bounded rationality, by exploring the systematic biases that separate the beliefs that people have and the choices they make from the optimal beliefs and choices assumed in rational-agent models. The rational-agent model was our starting point and the main source of our null hypotheses, but Tversky and I viewed our research primarily as a contribution to psychology, with a possible contribution to economics as a secondary benefit. We were drawn into the interdisciplinary conversation by economists who hoped that psychology could be a useful source of assumptions for economic theorizing, and indirectly a source of hypotheses for economic research.

...Furthermore, the alternative to simple and precise models is not chaos. Psychology offers integrative concepts and mid-level generalizations, which credibility from their ability to explain ostensibly different phenomena in diverse domains. In this spirit, the present essay offers a unified treatment of intuitive judgment and choice, which builds on an earlier study of the relationship between preferences and attitudes (Kahne- man et al., 1999) and extends a model of judgment heuristics recently proposed by Kah- neman and Shane Frederick(2002). The guiding ideas are (i) that most judgments and most choices are made intuitively; (ii) that the rules that govern intuition are generally similar to the rules of perception. Accordingly, the discussion of the rules of intuitive judgments and choices will rely extensively on visual analogies.