(WP 2014-03) Bounded Rationality and Bounded Individuality

This paper argues that since the utility function conception of the individual is derived from standard rationality theory, the view that rationality is bounded suggests that individuality should also be seen as bounded. The meaning of this idea is developed in terms of two ways in which individuality can be said to be bounded, with one bound associated with Kahneman and Tversky’s prospect theory and the ‘new’ behavioral economics and a second bound associated with Simon’s evolutionary thinking and the ‘old’ behavioral economics. The paper then shows how different bounded individuality conceptions operate in nudge economics, agent-based modeling, and social identity theory, explaining these conceptions in terms of how they relate to these two behavioral economics views of bounded rationality. How both the ‘new’ and ‘old’ individuality bounds might then be combined in a single account is briefly explored in connection with Kirman’s Marseille fish market analysis

The virtues and vices of equilibrium and the future of financial economics

The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human reasoning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then we present a critique and describe why this approach is inherently limited, and why economics needs to move in new directions if it is to continue to make progress. We stress that this shouldn't be a question of dogma, but should be resolved empirically. There are situations where equilibrium models provide useful predictions and there are situations where they can never provide useful predictions. There are also many situations where the jury is still out, i.e., where so far they fail to provide a good description of the world, but where proper extensions might change this. Our goal is to convince the skeptics that equilibrium models can be useful, but also to make traditional economists more aware of the limitations of equilibrium models. We sketch some alternative approaches and discuss why they should play an important role in future research in economics.Comment: 68 pages, one figur

Computable Rationality, NUTS, and the Nuclear Leviathan

This paper explores how the Leviathan that projects power through nuclear arms exercises a unique nuclearized sovereignty. In the case of nuclear superpowers, this sovereignty extends to wielding the power to destroy human civilization as we know it across the globe. Nuclearized sovereignty depends on a hybrid form of power encompassing human decision-makers in a hierarchical chain of command, and all of the technical and computerized functions necessary to maintain command and control at every moment of the sovereign's existence: this sovereign power cannot sleep. This article analyzes how the form of rationality that informs this hybrid exercise of power historically developed to be computable. By definition, computable rationality must be able to function without any intelligible grasp of the context or the comprehensive significance of decision-making outcomes. Thus, maintaining nuclearized sovereignty necessarily must be able to execute momentous life and death decisions without the type of sentience we usually associate with ethical individual and collective decisions

An Agent-Based Model of Mortality Shocks, Intergenerational Effects, and Urban Crime

Rational criminals choose crime over lawfulness because it pays better; hence poverty correlates to criminal behavior. This correlation is an insufficient historical explanation. An agent-based model of urban crime, mortality, and exogenous population shocks supplements the standard economic story, closing the gap with an empirical reality that often breaks from trend. Agent decision making within the model is built around a career maximization function, with life expectancy as the key independent variable. Rational choice takes the form of a local information heuristic, resulting in subjectively rational suboptimal decision making. The effects of population shocks are explored using the Crime and Mortality Simulation (CAMSIM), with effects demonstrated to persist across generations. Past social trauma are found to lead to higher crime rates which subsequently decline as the effect degrades, though \'aftershocks\' are often experienced.Agent-Based Model, Crime, Bounded Rationality, Life Expectancy, Rational Choice

Morals From Rationality Alone? Some Doubts

Contractarians aim to derive moral principles from the dictates of instrumental rationality alone. But it is well-known that contractarian moral theories struggle to identify normative principles that are both uniquely rational and morally compelling. Michael Moehler's recent book, *Minimal Morality* seeks to avoid these difficulties by developing a novel "two-level" social contract theory, which restricts the scope of contractarian morality to cases of deep and persistent moral disagreement. Yet Moehler remains ambitious, arguing that a restricted version of Kant's categorical imperative is a uniquely rational principle of conflict resolution. We develop a formal model of Moehler's informal game-theoretic argument, which reconstructs a valid argument for Moehler's conclusion. This model, in turn, enables us to expose how a successful argument for Moehler's contractarian principle rests on assumptions that can only be justified by subtle yet significant departures from the standard conception of rationality. We thus extend our understanding of familiar contractarian difficulties by showing how they arise even if we restrict the scope of contractarian morality to a domain where its application seems both promising and necessary. We show that the problem lies not in contractarians' immodest ambitions but in the modest resources rationality can offer to satisfy them