Lars P. Syll — Dutch books and money pumps

According to Keynes we live in a world permeated by unmeasurable uncertainty – not quantifiable stochastic risk – which often forces us to make decisions based on anything but rational expectations. Sometimes we ‘simply do not know.’ Keynes would not have accepted the view of Bayesian economists, according to whom expectations “tend to be distributed, for the same information set, about the prediction of the theory.” Keynes, rather, thinks that we base our expectations on the confidence or ‘weight’ we put on different events and alternatives. To Keynes, expectations are a question of weighing probabilities by ‘degrees of belief,’ beliefs that have precious little to do with the kind of stochastic probabilistic calculations made by the rational agents modelled by Bayesian economists.

Lars P. Syll’s Blog
Dutch books and money pumps
Lars P. Syll | Professor, Malmo University

Philip Kotler — Why Behavioral Economics Is Really Marketing Science

The greatest irony is that traditional economics is now facing a new competitor, namely behavioral economics. Behavioral economics attacks the crucial assumption that consumers engage in maximizing behavior. Aiming to maximize utility or profits is the key to building economic decision models. Otherwise, economists would have to work with another assumption, that consumers are basically “satisficing,” stopping short of spending time to maximize and being happy enough to achieve enough of what they want. But the mathematics aren’t there for this behavior and hence the claim of economics to be a science is also weakened.

Behavioral economists, instead of assuming that consumers and producers are maximizers, have to study how different marketing actors actually behave. This involves collecting empirical data. This will lead to recognizing many instances of non-rational or even irrational behavior. How do we explain people paying so much more for coffee at Starbucks or ice cream from Haagen Dazs? How do we explain some low income people voting for Republican candidates when the empirical evidence shows that poor people have done better during Democratic administrations than Republican administrations?

If economists now have to study and explain how consumers actually make their choices, they need to turn to marketing. For a hundred years, marketers have collected data on what, how and why consumers buy what they buy. The data is there. The only conclusion we can draw is that behavioral economics is, ironically, another word for marketing. Marketers have been the behavioral economists!

Evonomics
Why Behavioral Economics Is Really Marketing Science
Philip Kotler |  S.C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management at Northwestern University

Christopher Krupenye — Apes Make Irrational Economic Decisions – That Includes You

Because bonobos, chimpanzees, and humans all exhibit framing effects, it is unlikely that this trait evolved independently in each lineage. Instead, it appears that choice biases are evolutionarily ancient. They were probably present in the last common ancestor of bonobos, chimpanzees, and humans, which lived about six million years ago, and may even be much older. That framing effects are shared with several non-human species also suggests that these biases are deeply rooted in our biology, and can arise in the absence of experience with uniquely human monetary markets. Choice biases may have evolved in response to certain challenges in foraging ecology, or they may represent a by-product for selection on other traits, such as emotions.…

Evonomics
Apes Make Irrational Economic Decisions – That Includes You

Christopher Krupenye, PhD candidate in Evolutionary Anthropology, Duke University

Ohio State University — You're not irrational, you're just quantum probabilistic

Researchers explain human decision-making with physics theory…

"Whenever something comes up that isn't consistent with classical theories, we often label it as 'irrational.' But from the perspective of quantum cognition, some findings aren't irrational anymore. They're consistent with quantum theory--and with how people really behave."

In two new review papers in academic journals, Wang and her colleagues spell out their new theoretical approach to psychology. One paper appears in Current Directions in Psychological Science, and the other in Trends in Cognitive Sciences.

Their work suggests that thinking in a quantum-like way¬--essentially not following a conventional approach based on classical probability theory--enables humans to make important decisions in the face of uncertainty, and lets us confront complex questions despite our limited mental resources.

What was that about rational choice again?

Eureka Alert
You're not irrational, you're just quantum probabilistic
Ohio State University

ht Mark Thoma at Economist's View