Conversations on Bounded Rationality

Daniel Kahneman won the Nobel Prize in 2002 for work applying experimental psychological methods to economic problems. In this interview with Harry Kreisler, host of Berkeley’s Conversations with History, he describes how he came to study the problem of “bounded rationality.”

Related readings are provided below the fold.

Bibliography: Decision Theory

  • Klaes, M. & Sent, E.-M.  (2005).  A Conceptual History of the Emergence of Bounded Rationality.  History of Political Economy, 37(1), 27-59. Our aim is twofold. On the one hand, we provide a comprehensive account of the emergence of “bounded rationality” in the social scientific literature of the twentieth century…. On the other hand, we submit to the reader a case study in the application of a historiographic approach to conceptual history novel to the history of economics. While an earlier study by the other of the present authors (Klaes 2001) has adopted this approach to trace the history of individual expressions, our objective here is to analyze the historical development of a family of expressions, with particular attention being paid to how individual members may assume a dominant position.
  • Moscati, I.  (2007).  Early experiments in Consumer Demand Theory: 1930-1970. History of Political Economy, 39(3), 359-401. Historical accounts of this stream of research are short on details or incomplete. The present work fills this lacuna and provides a comprehensive reconstruction of the experimental research made in consumption theory in the early period from 1930 to 1970, thus contributing to the history of both experimental economics and the neoclassical theory of consumer demand. More specifically, the essay explores the experimental research on riskless choices in connection with the 1930–70 developments in consumer demand analysis. The experiments under consideration were in fact motivated by theoretical questions and can be assessed in a proper historical way only against the background of the contemporary theoretical debate. Moreover, many of the main demand theorists of the period — Henry Schultz, Ragnar Frisch, Harold Hotelling, Nicholas Georgescu-Roegen, Milton Friedman, Jacob Marschak, Hendrik S. Houthakker, Leonid Hurwicz, and John Chipman, among others — were well aware of the ongoing experimental research in the field, and some also contributed to it in more or less direct ways. In the opposite direction, this essay also investigates the impact of experimental research on the development of consumer demand theory. It turns out that in the period under consideration the influence of experimental research on the theory of consumer behavior was indeed very limited. The present study shows that, at least in the United States, this was not due to economists’ ignorance of the experimental work, and it suggests some explications for this lack of effects.
  • Sent, E.-M.  (2004). Behavioral Economics: How Psychology made its (limited) way back into Economics.  History of Political Economy, 36(4), 735-760. This paper puts the present enthusiasm for what we label the “new” behavioral economics of Shleifer, Rabin, Akerlof, Kahneman, and Mullainathan–along with other well-known contributors such as Colin Camerer, David Laibson, and George Loewenstein–in historical perspective by contrasting it with an earlier lack of interest in psychological insights in general and comparing it with an earlier incarnation, which we shall identify as “old” behavioral economics, in particular. The first section offers a bird’s-eye view of historical connections between economics and psychology. Section 2 then takes a closer look at old behavioral economics, while the next one considers the transitional period between old and new behavioral economics, the latter of which is discussed in section 4. The fifth section suggests explanations for the rising interest in behavioral economics.


About Jeremy Burman

Jeremy Trevelyan Burman is a senior doctoral student in York University’s Department of Psychology, specializing in the history of developmental psychology and its theory (especially that pertaining to Jean Piaget). Prior to returning to academia, he was a producer at the Canadian Broadcasting Corporation.