Bounded rationality and decomposability: The basis for integrating cognitive and evolutionary economics

Earl, Peter E. and Potts, Jason (2004). Bounded rationality and decomposability: The basis for integrating cognitive and evolutionary economics. In Mie Augier and James G. March (Ed.), Models of a Man: Essays in Memory of Herbert A. Simon (pp. 317-334) Cambridge, MA, U.S.A.: MIT Press.

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Author Earl, Peter E.
Potts, Jason
Title of chapter Bounded rationality and decomposability: The basis for integrating cognitive and evolutionary economics
Title of book Models of a Man: Essays in Memory of Herbert A. Simon
Place of Publication Cambridge, MA, U.S.A.
Publisher MIT Press
Publication Year 2004
Sub-type Research book chapter (original research)
ISBN 0262012081 (hc. : alk. paper)
Editor Mie Augier
James G. March
Chapter number III Modelling Systems
Start page 317
End page 334
Total pages 18
Total chapters 42
Collection year 2004
Language eng
Subjects 340101 Microeconomic Theory
340102 Macroeconomic Theory
720203 Industrial organisations
720202 Consumption
1401 Economic Theory
Abstract/Summary This paper explores the interconnections between two of Herbert Simon's key concepts, bounded rationality and decomposability, and show how this unity provides the starting point for merging cognitively focused approaches to behavioral economics with evolutionary/institutional economics into a coherent single framework. It does this by showing how the authors' ways of looking at the world were influenced by Simon's thinking: in the case of Earl, this led initially to a check-list view of choice that helped to make sense of the role of non-price factors in international trade and the de-industrialization problem in the UK in the 1970s, while the notion that resilient systems tend to be structurally decomposable helped make sense of why sharp rises in prices of 'basic' products can produce crises. Potts came to see the economic system as a multi-level system of partially decomposable systems that agents developed as a means of coping with bounded rationality. The paper ends by reflecting on potential for instability as the world economy becomes increasingly globalized and its web of connections potentially more intricate.
Keyword decomposability
bounded rationality
non-price factors
complex systems
behavioral economics
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Created: Fri, 16 Dec 2005, 10:00:00 EST by Peter E. Earl on behalf of School of Economics