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Decision, Contract and Emotion: Some Economics for a Complex and Confusing World

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  • W. Bentley MacLeod

    (Boston College)

Abstract

This essay illustrates that if Savage's small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of endowment effects in exchange.

Suggested Citation

  • W. Bentley MacLeod, 1996. "Decision, Contract and Emotion: Some Economics for a Complex and Confusing World," Boston College Working Papers in Economics 336., Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:336
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    File URL: http://fmwww.bc.edu/EC-P/wp336.pdf
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    Cited by:

    1. Benjamin E. Hermalin and Alice M. Isen., 1999. "The Effect of Affect on Economic and Strategic Decision Making," Economics Working Papers E99-270, University of California at Berkeley.
    2. Mayer, Stefan & Steinhardt, Claudius, 2016. "Optimal product line pricing in the presence of budget-constrained consumers," European Journal of Operational Research, Elsevier, vol. 248(1), pages 219-233.
    3. Gilboa, Itzhak & Postlewaite, Andrew & Schmeidler, David, 2021. "The complexity of the consumer problem," Research in Economics, Elsevier, vol. 75(1), pages 96-103.
    4. Gloria Gennaro & Elliott Ash, 2022. "Emotion and Reason in Political Language," The Economic Journal, Royal Economic Society, vol. 132(643), pages 1037-1059.
    5. Mehrdad Vahabi, 1999. "From Walrasian General Equilibrium to Incomplete Contracts: Making Sense of Institutions," Cahiers de la Maison des Sciences Economiques j99008, Université Panthéon-Sorbonne (Paris 1).
    6. repec:eee:labchp:v:3:y:1999:i:pb:p:2291-2372 is not listed on IDEAS
    7. Hanoch, Yaniv, 2002. ""Neither an angel nor an ant": Emotion as an aid to bounded rationality," Journal of Economic Psychology, Elsevier, vol. 23(1), pages 1-25, February.
    8. Lu Hong & Scott E. Page, 1998. "Diversity and Optimality," Research in Economics 98-08-077e, Santa Fe Institute.
    9. Scott E. Page, 1998. "Uncertainty, Difficulty, and Complexity," Research in Economics 98-08-076e, Santa Fe Institute.
    10. J Foster, 2000. "Is There A Role For Transaction Cost Economics If We View Firms As Complex Adaptive Systems?," Contemporary Economic Policy, Western Economic Association International, vol. 18(4), pages 369-385, October.
    11. Ben-Ner, Avner & Putterman, Louis, 2000. "On some implications of evolutionary psychology for the study of preferences and institutions," Journal of Economic Behavior & Organization, Elsevier, vol. 43(1), pages 91-99, September.
    12. James E. Anderson, 1999. "Why Do Nations Trade (So Little)?," Boston College Working Papers in Economics 428, Boston College Department of Economics.
    13. Itzhak Gilboa & Andrew Postlewaite & David Schmeidler, 2015. "Consumer Choice as Constrained Imitation," PIER Working Paper Archive 15-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    14. H. Lorne Carmichael & W. Bentley MacLeod, 1997. "Territorial Bargaining," Boston College Working Papers in Economics 343., Boston College Department of Economics.

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    More about this item

    Keywords

    Bounded rationality; decision theory; complexity;
    All these keywords.

    JEL classification:

    • D0 - Microeconomics - - General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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