The information inelasticity of habits: Kahneman’s bounded rationality or Simon’s procedural rationality?

Abstract

Why would decision makers (DMs) adopt heuristics, priors, or in short “habits” that prevent them from optimally using pertinent information—even when such information is freely-available? One answer, Herbert Simon’s “procedural rationality” regards the question invalid: DMs do not, and in fact cannot, process information in an optimal fashion. For Simon, habits are the primitives, where humans are ready to replace them only when they no longer sustain a pregiven “satisficing” goal. An alternative answer, Daniel Kahneman’s “mental economy” regards the question valid: DMs make decisions based on optimization. Kahneman understands optimization not differently from the standard economist’s “bounded rationality.” This might surprise some researchers given that the early Kahneman, along with Tversky, have uncovered biases that appear to suggest that choices depart greatly from rational choices. However, once we consider cognitive cost as part of the constraints, such biases turn out to be occasional failures of habits that are otherwise optimal on average. They are optimal as they save us the cognitive cost of case-by-case deliberation. While Kahneman’s bounded rationality situates him in the neoclassical economics camp, Simon’s procedural rationality echoes Bourdieu’s “habitus” camp. To abridge the fault line of the two camps, this paper proposes a “two problem areas hypothesis.” Along the neoclassical camp, habits satisfy wellbeing, what this paper calls “substantive satisfaction.” Along the Bourdieu camp, habits satisfy belonging, love, and bonding with one’s environment, what this paper calls “transcendental satisfaction.”

Mental accounting, heuristics, and the second‐best: Solving the calculator‐jacket puzzle

“…This account is clearly in the tradition of neoclassical economics. While this statement may surprise a few researchers, it is fully defended in other papers (Khalil, 2022(Khalil, , 2024cKhalil & Amin, 2023). 2 Herbert Simon offers an alternative theory of heuristics, what he calls "procedural rationality" (Simon, 1976).…”

“…Such a precise articulation uncovers many manifestations of mental accounting. One manifestation, which is not discussed here, is the class of routines and tools as technologies aimed to economize physiological effort (see Khalil, 2022, 2024c; Khalil & Amin, 2023).…”

The parallelism of cognitive economy and physiological economy: A rationality-based dual process theory

“…There is a range of phenomena for which the Simon-Gigerenzer approach might be relevant. As argued elsewhere (Khalil, 2022), one's mode of being is relevant to bonding: how one relates to one's family and nation, ideology, and aspiration. Also, as argued elsewhere (Khalil, 2021), one's mode of being is relevant to beliefs such as convictions and perspectives as in Rubin's vase.…”

“…The DM expects occasional slipups, i.e., tolerate them up to a limit. Habits, by design seem to be inelastic to information feedback, unlike deliberative decisions (Khalil, 2022).…”

The cost of love: Solving the gift anomaly

“…According to bounded rationality, DMs adopt habits to economize on the cost of case‐by‐case evaluation of choices. Habits are supposed to be efficient on average (see Khalil, 2022c; Khalil & Amin, 2022). In contrast, obsessions and addictions are about the pursuit of excessive transcendental preferences, that is, incurring bonding costs beyond bonding rewards.…”