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Bounded Rationality and Industrial Organization
Ran Spiegler
240 pages
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235x156mm
978-0-19-539871-7
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Hardback
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24 February 2011
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- The first graduate-level textbook treatment of theoretical developments in the last 10-15 years in economic models that incorporate aspects of the psychology of decision making.
- The first synthesis of market models with boundedly rational consumers, with potential implications for consumer protection policies.
Conventional economic theory assumes that consumers are fully rational, that they have well-defined preferences and easily understand the market environment. Yet, in fact, consumers may have inconsistent, context-dependent preferences, or simply not enough brain-power to evaluate and compare complicated products. Thus the standard model of consumer behavior-which depends on an ideal market in which consumers are boundlessly rational—is called into question. While behavioral economists have for some time confirmed and characterized these inconsistencies, the logical next step is to
examine the implications they have in markets.
Grounded in key observations in consumer psychology, Bounded Rationality and Industrial Organization develops non-standard models of "boundedly rational" consumer behavior and embeds them into familiar models of markets. It then rigorously analyses each model in the tradition of microeconomic theory, leading to a richer, more realistic picture of consumer behavior. Ran Spiegler analyses phenomena such as exploitative price plans in the credit market, complexity of financial products and other obfuscation practices, consumer antagonism to unexpected price increases, and the role of default options in consumer decision making. Spiegler unifies the relevant literature into three main strands: limited ability to anticipate
and control future choices, limited ability to understand complex market environments, and sensitivity to reference points.
Although the challenge of enriching the psychology of decision makers in economic models has been at the frontier of theoretical research in the last decade, there has been no graduate-level, theory-oriented textbook to cover developments in the last 10-15 years. Thus, Bounded Rationality and Industrial Organization offers a welcome and crucial new understanding of market behavior-it challenges conventional wisdom in ways that are interesting and economically significant, and which in the end effect the well-being of all market participants.Readership: Graduate and
advanced upper-level students of economics; economists interested in industrial organization, bounded rationality, decision theory and behavioral economics, as well as those interested in fair trade regulation and consumer protection; psychologists interested in consumer behavior.
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Ran Spiegler, Department of Economics, University College London Ran Spiegler is Professor of Economics at Tel Aviv University and University College London.
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"Nobody thinks like Adam Smith when buying a toothbrush, but this is the assumption of consumer behavior offered in traditional economics textbooks. Marketing experts used to laugh at such naivety, but they will have to take economic theory more seriously from now on. Ran Spiegler's book takes on the challenge of rewriting the theory of industrial organization without the classical assumption that economic agents are all rational supermen. This is an important book that nobody working on industrial organization will wish to be without." - Ken Binmore, University College London
"Spiegler's Bounded Rationality and Industrial Organization is a beautifully written book. He makes a compelling case that understanding what happens when boundedly rational consumers meet sophisticated firms is both intellectually interesting and practically important. He has a wonderful feel for using rigorous models to clarify arguments and develops insights from a number of branches of the emerging literature in a parsimonious way. It is a must read book." - Glenn Ellison, Massachusetts Institute of Technology
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1: Introduction
I Anticipating Future Preferences
2: Dynamically Inconsistent Preferences I: Unconstrained Contracting
3: Dynamically Inconsistent Preferences II: Constrained Contracting
4: Dynamically Inconsistent Preferences III: Partial Naivety
5: Biased Beliefs without Dynamic Inconsistency
II Responding to Market Complexity
6: Sampling-Based Reasoning: Price Competition and Product Differentiation
7: Sampling-Based Reasoning: Obfuscation
8: Coarse Reasoning
III Reference Dependence
9: Loss Aversion
10: Inertia I: Price Competition
11: Inertia II: Costly Marketing 261
IV Discussion
12: Recurring Themes
13: But Can't we Get the Same Thing with a Standard Model?
Bibliography
Index
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The specification in this catalogue, including without limitation price, format, extent, number of illustrations, and month of publication, was as accurate as possible at the time the catalogue was compiled. Occasionally, due to the nature of some contractual restrictions, we are unable to ship a specific product to a particular territory. Jacket images are provisional and liable to change before publication.
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