Friday, March 28, 2014

A few words on fuzzy economics

I finished a proposal for a book chapter on the relationship between fuzzy logic and modern economics. Here is what I say about behavioral and institutional economics:
"Behavioural economics replaces the assumptions of rational and exogenously individualistic behaviour by an assumption that individual behaviour is presided by the mental shortcuts and predictable biases that real individuals show, according to research in empirical and social psychology. Decisions depend on framing, preferences are reference dependent, and the communication based on natural language (intuitions,
vagueness, fast thinking) matters. Fuzzy logic seems complementary to this approach, to the extent that it provides a more realistic framework on which to base assumptions on preferences.
Formal and informal rules that constrain and structure our social behaviour (institutions) are recognized to play an important role in attempting to solve social dilemmas (cooperation and coordination problems) in our society. Our behaviour in repeated games depends on cognitive representations, where languages play an important role in a variety of domains: firm, market, politics, communities. Saliency plays an important role in the emergence of conventions. The coordination of identities through interactive sense-making plays an importantrole. Fuzzy logic could play an important role in better describing the role that natural language plays in structuring representations and cognitive structures that structure our social games."
I finish by saying that "In the last century economics has made progress by explaining partially the workings of very simplistic market economies. The next step should be to analyze the dynamics of socio-political systems with boundedly rational players that navigate with fuzzy categories, where citizens as voters and policy makers interact with citizens as they behave in the domains of markets and communities."

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