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

By W. Bentley MacLeod


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.Bounded rationality, decision theory, complexity

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