Economics versus Psychology. Risk, Uncertainty and the Expected Utility Theory

Schilirò, Daniele

doi:10.14505//jmef.v3.1(4).04

Cited by 5 publications

(7 citation statements)

References 11 publications

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“…The main hypotheses of Solow's model are the presence of decreasing marginal returns, an exogenous rate of increase in technical progress, the convergence between economies with the same initial conditions, a long-term growth rate of zero. Different savings rates explain differences in income levels across countries (Schilirò, 2017).…”

Section: Endogenous Growth Theory and The Relevance Of Romer's Contrimentioning

confidence: 99%

The Growth Conundrum: Paul Romer’s Endogenous Growth

Schilirò¹

2019

IBR

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The explanation and causes of economic growth, the problem of convergence of per capita income among different economies, the low productivity growth in many advanced economies, and the presence of disrupting technological innovations remain at the center of the debate among economists. The present contribution analyzes the endogenous growth theory of Paul Romer and discusses its features and content through Romer’s main works on the topic. This study on Romer’s work highlights the existence and importance of increasing returns in the process of growth, the key role of knowledge, the ideas as non-rival goods, the existence of externalities, the endogeneity of technological change, and the primary role of human capital, especially in research activity. Institutions, such as property rights are important as well. The state also has a decisive role in education and the research sector. Another relevant aspect is that economic growth and technological change are closely interconnected; they cannot be separated. Romer’s theory of endogenous technological change ties the development of new ideas and economic growth to the number of people working in the knowledge sector. New ideas, being non-rival and partially excludable, are fundamental for growth since they make everyone producing physical goods and services more productive. Finally, Romer’s endogenous growth highlights the factors that provide incentives for knowledge creation; thus, his theory can also be considered a significant contribution to the theory of the knowledge-based economy.

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Section: Endogenous Growth Theory and The Relevance Of Romer's Contrimentioning

confidence: 99%

The Growth Conundrum: Paul Romer’s Endogenous Growth

Schilirò¹

2019

IBR

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“…Uncertainty and risk also became the subject of research in the process of formulating expected utility hypothesis. It is the so-called Bernoulli's St. Petersburg paradox developed in 1738 that forms the foundation for this hypothesis (Schilirò, 2017). The principle of maximisation of expected utility should be followed by participants of business life who, according to Arrow, in their decision-making processes administer knowledge established with the help of the so-called subjective probability.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

“…With the rapid economic, technological, social and commercial changes, uncertainty and risk started to appear in all spheres of activity of national economies and societies at macroeconomic level and of economic operators and entities at microeconomic level, thus becoming subject of research in numerous scientific disciplines and sub-disciplines (Banse & Bechmann, 1998;Elahi, 2013;Schilirò, 2017;Zinn, 2006Zinn, , 2010.…”

Section: Introductionmentioning

confidence: 99%

The problem of uncertainty and risk as a subject of research of the Nobel Prize Laureates in Economic Sciences

Bąk¹

2020

JEM

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Aim/purpose-The main aim of the present paper is to identify the problem of uncertainty and risk in research carried out by the Nobel Prize Laureates in Economic Sciences and its analysis by disciplines/sub-disciplines represented by the awarded researchers. Design/methodology/approach-The paper rests on the literature analysis, mostly analysis of research achievements of the Nobel Prize Laureates in Economic Sciences. Findings-Studies have determined that research on uncertainty and risk is carried out in many disciplines and sub-disciplines of economic sciences. In addition, it has been established that a number of researchers among the Nobel Prize laureates in the field of economic sciences, take into account the issues of uncertainty and risk. The analysis showed that researchers selected from the Nobel Prize laureates have made a significant contribution to raising awareness of the importance of uncertainty and risk in many areas of the functioning of individuals, enterprises and national economies. Research implications/limitations-Research analysis was based on a selected group of scientific research-Laureates of the Nobel Prize in Economic Sciences. However, thus confirmed groundbreaking and momentous nature of the research findings of this group of authors justifies the selective choice of the analysed research material. Originality/value/contribution-The paper includes a selection of research achievements in uncertainty and risk of the Nobel Prize Winners in Economic Sciences previously not presented in scientific papers.

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“…Furthermore, statistical decision theory and game theory have contributed, embracing uncertainty, risk, and imperfect information, to strength the neoclassical view of rational choice. As a result, the standard of rationality in economics becomes the maximization of subjective expected utility-a combination of von Neumann-Morgenstern preferences and a Bayesian belief structure (Edwards, 1954;Schilirò, 2012Schilirò, , 2017. Finally, computer modelling and engineering techniques have strengthened the decision analysis together with Bayesian statistics (Howard, 1960) (Note 2).…”

Section: Economic Decisions and Bounded Rationalitymentioning

confidence: 99%

Economic Decisions and Simon’s Notion of Bounded Rationality

Schilirò¹

2018

IBR

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Decision making in economics has been always intertwined with the concept of rationality. However, neoclassical economic literature has been dominated by a specific notion of rationality, namely, perfect rationality, characterized by the assumption of consistency and by the maximization hypothesis. Herbert Simon, in his long research activity, questioned this concept of perfect or global rationality, suggesting a different vision, based on empirical evidence and regarding an individual’s choices. He challenged the neoclassical theory of global rationality, suggesting his notion of bounded rationality, a satisficing (instead of optimizing) behavior, and the relevance of procedural rationality to understand the process of thought of decision makers.Thus, this paper focuses on Simon’s notion of bounded rationality, since bounded rationality remains the hallmark of his theoretical contribution. First, the paper examines the economic decision process in the neoclassical theory and Simon’s notion of bounded rationality. Then, it analyzes in depth Simon’s behavioral model of rational choice, underlining the relevance of satisficing behavior and procedural rationality. Finally, it suggests an assessment of the concept of bounded rationality.

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Economics versus Psychology. Risk, Uncertainty and the Expected Utility Theory

Cited by 5 publications

References 11 publications

The Growth Conundrum: Paul Romer’s Endogenous Growth

The Growth Conundrum: Paul Romer’s Endogenous Growth

The problem of uncertainty and risk as a subject of research of the Nobel Prize Laureates in Economic Sciences

Economic Decisions and Simon’s Notion of Bounded Rationality

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