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Institutions are rules that are supported by various enforcement mechanisms. Cognition refers to the process of how men perceive and process information, whereas rationality refers to how these processes are modelled. Within institutional economics there is a growing scepticism towards extending the conventional economic frame of analysis to institutions. In particular, the notion of perfect rationality is increasingly questioned. At the same time human cognition has become a major field of research in psychology. This book explores what institutional economics can learn from cognitive psychology regarding the proper modelling of rationality in order to explain institutional change.
The Cognitive Basis of Institutions: A Synthesis of Behavioral and Institutional Economics synthesizes modern research in behavioral economics with traditional institutional economics. This work emphasizes that institution and agent are inextricably linked, and that both cognitive and institutional processes coalesce to influence human decision-making. It integrates cognition and institution through the behavioral economics theoretical lens of bounded rationality. Methodologically, it develops game-theoretical, complexity and neuroeconomic solutions to unite study of the two areas. The work concludes by proposing general implications for the economic study of decisions using the cognitive-institutional approach, also providing specific recommendations for public policy. Reveals how institutional structures and individual actions interact and coevolve cognitively Connects individual decision-making, decision-making processes and institutional formation Unites our understanding of cooperative ‘prosocial’ behavior with the institutional dynamics that may create it Discusses the implications of the behavioral-institutional paradigm for paternalism and libertarianism in public policy
Advances in the social sciences are used to uncover cognitive foundations of social decision making.
“How do people make decisions in organizations?” is the question at the core of this book. Do people act rationally? Under what conditions can information and knowledge be shared to improve decision making? Davide Secchi applies concepts and theories from cognitive science, organizational behavior, and social psychology to explore the dynamics of decision making. In particular, he integrates “bounded rationality” (people are only partly rational; they have (a) limited computational capabilities and (b) limited access to information) and “distributed cognition” (knowledge is not confined to an individual, but is distributed across the members of a group) to build upon the pioneering work of Herbert Simon (1916-2001) on rational decision making and contribute fresh insights. This book is divided into two parts. The first part (Chapters 2 to 5) explores how recent studies on biases, prospect theory, heuristics, and emotions provide the so-called “map” of bounded rationality. The second part (Chapter 6 to 8) presents the idea of extendable rationality. In this section, Secchi identifies the limitations of bounded rationality and focuses more heavily on socially-based decision processes and the role of “docility” in teaching, managing, and executing decisions in organizations. The practical implications extend broadly to issues relating to change and innovation, as organizations adapt to evolving market conditions, implementing new systems, and effectively managing limited resources. The final chapter outlines an agenda for future research to help understand the decision making characteristics and capabilities of an organization.
Written in an informal way, this book is addressed to philosophers or cognitive scientists curious of how economics deals with cognition and to graduate students in economics eager to discover how economics evolves. It aims at extending the framework of game theory in order to better fit with the results of rapidly increasing laboratory experiments concerned with individual choices and collective interactions.
Where do new ideas come from? What is social intelligence? Why do social scientists perform mindless statistical rituals? This vital book is about rethinking rationality as adaptive thinking: to understand how minds cope with their environments, both ecological and social.Gerd Gigerenzer proposes and illustrates a bold new research program that investigates the psychology of rationality, introducing the concepts of ecological, bounded, and social rationality. His path-breaking collection takes research on thinking, social intelligence, creativity, and decision-making out of an ethereal world where the laws of logic and probability reign, and places it into our real world of human behavior and interaction. Adaptive Thinking is accessibly written for general readers with an interest in psychology, cognitive science, economics, sociology, philosophy, artificial intelligence, and animal behavior. It also teaches a practical audience, such as physicians, AIDS counselors, and experts in criminal law, how to understand and communicate uncertainties and risks.
This book deals with the theoretical, methodological, and empirical implications of bounded rationality in the operation of institutions. It focuses on decisions made under uncertainty, and presents a reliable strategy of knowledge acquisition for the design and implementation of decision-support systems. Based on the distinction between the inner and outer environment of decisions, the book explores both the cognitive mechanisms at work when actors decide, and the institutional mechanisms existing among and within organizations that make decisions fairly predictable. While a great deal of work has been done on how organizations act as patterns of events for (boundedly) rational decisions, less effort has been devoted to study under which circumstances organizations cease to act as such reliable mechanisms. Through an empirical strategy on open-ended response data from a survey among junior judges, the work pursues two main goals. The first one is to explore the limits of “institutional rationality” of the Spanish lower courts on-call service, an optimal scenario to observe decision-making under uncertainty. The second aim is to achieve a better understanding of the kind of uncertainty under which inexperienced decision-makers work. This entails exploring the demands imposed by problems and the knowledge needed to deal with them, making this book also a study on expertise achievement in institutional environments. This book combines standard multivariate statistical methods with machine learning techniques such as multidimensional scaling and topic models, treating text as data. Doing so, the book contributes to the collaboration between empirical social scientific approaches and the community of scientists that provide the set of tools and methods to make sense of the fastest growing resource of our time: data.
Computational Organizational Cognition presents simulations to clearly assess the advantages of agent-based computational organizational cognition (AOC) for both theory and practice, demonstrating how AOC is an essential instrument to explore, understand and analyze the inner complexities of organizational cognition.
The purpose of this book is to publish the ideas of the late Herbert Simon and sympathetic economists, on the subject of bounded rationality, economics, cognitive science and related disciplines, and to reprint some of Professor Simon's classic papers which have appeared in journals not widely read by economists. Not only on account of his Nobel Prize in Economics, but also because of the widespread applications of his ideas and theories, it is especially valuable to readers to have a book of this kind at the present time. Currently in this whole field, there is increasing emphasis on computer-related theory building. Herbert Simon, beginning from the time when microcomputers did not exist, was a pioneer of this approach. The book begins with an edited transcript of a colloquium, held between Herbert Simon and a group of Italian economists in Italy in 1988. It continues with the reprinted Simon papers and papers by three scholars, Raymond Boudon, Massimo Egidi and Riccardo Viale coming from different disciplines but holding a common interest in bounded rationality and ends with a response by a sympathetic economist, Robin Marris.