ABSTRACT
The fundamental criticism levelled at the behavioural economics and bounded rationality literatures is that neither has succeeded in presenting a general, abstract framework of economic decision-making that can replace the standard model of rational choice. In terms of Figure 5.6, this criticism asserts that the analytical power of these literatures remains less than that of the model of standard economic rationality. Indeed, the fundamental criticism of these literatures is that they have spawned (and continue to spawn) an array of different types of preference functions and decision-making processes, each of which is demonstrably applicable in specific situations and generates interesting findings supported by observed behaviour, but there is no accompanying framework as to which type of preference function or decision-making process is applicable to a new, given situation; a problem that is particular severe in the case of behavioural economics. For example, should a decision-maker be assumed to be subject to loss aversion, the endowment effect, decision fatigue or pro-social preferences? And, more specifically, should a decisionmaker in a model of strategic interaction be modelled along the lines of the cognitive hierarchy or the quantal response equilibrium approach? And which heuristic devices should a decision-maker be assumed to employ: the peak-end rule or the heuristics of availability, representativeness or anchoring and adjustment? Immediately this makes any model that starts from foundational behavioural assumptions prone to the criticism of being arbitrary and ad hoc. As Spiegler 2011 (page 200) asserts:
What mutes the ad-hockery criticism in the case of the rational-choice model is the existence of a coherent analytical framework, in which all standard economic models are embedded. A comparable abstract framework is, in my opinion, what is missing the most from the current bounded rationality and behavioral economics literature.
