Many economic theorists hold that social institutions can lead otherwise irrational agents to approximate the predictions of traditional rational choice theory. But there is little consensus on how institutions do so. I defend an economic internalist account of the institution-actor relationship by explaining economic rationality as a feature of individuals whose decision-making is aided by institutional structures. This approach, known as the subjective transaction costs theory, represents apparently irrational behavior as a rational response to high subjective transaction costs of thinking (...) and deciding. The theory has two attractive features. First, it reconciles rational choice theory with the increasing body of evidence cataloguing putative errors in economic decision-making. Second, it vindicates the explanatory power of individual choice against externalist challenges; the subjective transaction costs theory keeps economic rationality in the head. (shrink)

Common ratio effects should be ruled out if subjects’ preferences satisfy compound independence, reduction of compound lotteries, and coalescing. In other words, at least one of these axioms should be violated in order to generate a common ratio effect. Relying on a simple experiment, we investigate which failure of these axioms is concomitant with the empirical observation of common ratio effects. We observe that compound independence and reduction of compound lotteries hold, whereas coalescing is systematically violated. This result provides support (...) for theories which explain the common ratio effect by violations of coalescing instead of violations of compound independence. (shrink)

In this response, we clarify several misunderstandings of the understanding/acceptance principle and defend our specific operationalization of that principle. We reiterate the importance of addressing the problem of rational task construal and we elaborate the notion of computational limitations contained in our target article. Our concept of thinking dispositions as variable intentional-level styles of epistemic and behavioral regulation is explained, as is its relation to the rationality debate. Many of the suggestions of the commentators for elaborating two-process models are easily (...) integrated into our generic dual-process account. We further explicate how we view the relation between System 1 and System 2 and evolutionary and normative rationality. We clarify our attempt to fuse the contributions of the cognitive ecologists with the insights of the original heuristics and biases researchers. (shrink)

We advance the thesis that the method of experimental economics can make significant contributions to normative, as opposed to descriptive, business ethics. We contend that there are two basic ways in which experimental economics may make this contribution, and we exemplify these ways by pointing to experimental support of social contract theory as rational foundation for business ethics. These two ways are: (1) adding psychological realism; and (2) testing some quasi-empirical assumptions present in normative theory. In order to make good (...) our methodological claim, we first describe the methodological rules of experimental economics, distinguishing this method from other behavioral business ethics approaches. We also contemplate the possible objection that empirical methods cannot bear on normative ethics because there is no way of bridging the gap between descriptive theory (how people behave) and normative theory (how people ought to behave). (shrink)

A common finding in the study of emotion and decision making is the tendency for fear and anxiety to decrease risk taking. The current meta-analysis summarises the strength and variability of this...

Economic theory assumes that preferences are rational. However, experiments have found small violations of transitivity. This paper develops a model of rationality with preference discovery costs. Introspection is costly. Thus, agents may find it optimal to use less than full effort, even though this raises the risk of making a poor choice. This model could potentially explain the intransitivities observed in the data while retaining rationality and optimization.

Elicitation methods in decision-making under risk allow us to infer the utilities of outcomes as well as the probability weights from the observed preferences of an individual. An optimally efficient elicitation method is proposed, which takes the inevitable distortion of preferences by random errors into account and minimizes the effect of such errors on the inferred utility and probability weighting functions. Under mild assumptions, the optimally efficient method for eliciting utilities and probability weights is the following three-stage procedure. First, a (...) probability is elicited whose subjective weight is one half. Second, the utility function is elicited through the midpoint chaining certainty equivalent method using the probability elicited at the first stage. Finally, the probability weighting function is elicited through the probability equivalent method. (shrink)

Résumé L’article évoque les bases de la méthode expérimentale en général et son adaptation à l’étude des phénomènes économiques tout en rendant compte des réflexions philosophiques récentes sur la nature des expériences en laboratoire. Il recense par ailleurs les principales procédures expérimentales qui caractérisent la bonne pratique des économistes – dont certaines témoignent d’une grande ingéniosité – en pointant en parallèle ce qui la sépare de celle plus ancienne des psychologues. La question des incitations financières y fait l’objet d’une attention (...) toute particulière. L’article souligne les immenses progrès réalisés en quelques décennies comme le caractère très professionnel de la démarche expérimentale, sans pour autant occulter les désaccords qui persistent entre certains expérimentalistes et l’existence de quelques questions « ouvertes » d’importance. A cet égard, l’article tente de faire le point sur l’un des questionnements méthodologiques qui, bien que central dans un argumentaire de défense contre la critique courante du caractère « artificiel » des expériences, n’est vraiment abordé de manière sérieuse que depuis peu : le problème de la « validité externe » des résultats expérimentaux, i.e. leur capacité à être généralisés en dehors du laboratoire. (shrink)