Skip to main content Accessibility help
×
Hostname: page-component-5d59c44645-l48q4 Total loading time: 0 Render date: 2024-02-19T14:06:59.757Z Has data issue: false hasContentIssue false

5 - Bounded Rationality in Industrial Organization

Published online by Cambridge University Press:  05 January 2013

Glenn Ellison
Affiliation:
Massachusetts Institute of Technology
Richard Blundell
Affiliation:
University College London
Whitney K. Newey
Affiliation:
Massachusetts Institute of Technology
Torsten Persson
Affiliation:
Stockholms Universitet
Get access

Summary

Abstract

This paper discusses the use of bounded rationality in industrial organization. There is a long tradition of such work: Literatures from various decades have discussed irrationalities by firms and consumers. Three main approaches are found in the recent literature: Rule-of-thumb papers specify simple rules for behavior; explicit bounds papers consider agents who maximize payoffs net of cognitive costs; the psychology and economics approach typically cites experimental evidence to motivate utility-like framworks. Common to each recent literature is a focus on consumer irrationalities that firms might exploit. I discuss several new topics that have been opened up by the consideration of bounded rationality and new perspectives that have been provided on traditional topics.

INTRODUCTION

In the last few years there has been a surge of interest in bounded rationality in industrial organization. The field has attracted the attention of a remarkable collection of top young researchers from industrial organization and behavioral economics. Much of the recent interest has been spurred by developments in psychology and economics, but there is also a long-standing tradition of such work in industrial organization. Although the field is not yet as coherent and advanced as most fields surveyed at an Econometric Society World Congress, the fact that diverse strands of research and diverse researchers are coming together seemed to me to make it a topic for which a discussion could be useful.

The terms “boundedly rational” and “behavioral” have been used by different groups of economists over the years to describe different styles of work.

Type
Chapter
Information
Advances in Economics and Econometrics
Theory and Applications, Ninth World Congress
, pp. 142 - 174
Publisher: Cambridge University Press
Print publication year: 2006

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×