Implications of Smart Decision-Making and Heuristics for Production Theory and Material Welfare

Morris Altman (Lead / Corresponding author)

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)
46 Downloads (Pure)

Abstract

Conventional theory assumes that economic agents perform at optimal levels of efciency by defnition and this is achieved when individuals behave in a particular fashion. Moreover, neoclassical production theory masks the process by which optimal output can be achieved. I argue that economic theory should be revised to incorporate some key fndings of behavioural economics, while retaining the conventional theory’s normative ideal of optimum output whilst rejecting its normative procedural ideals of how to achieve optimality in production. I argue that neoclassical procedures can be expected to yield sub-optimal levels of output and therefore should not be benchmarks for procedural rationality. I present an alternative more realistic and analytically precise specifcation of the production function related to the fast and frugal heuristics narrative pioneered by Gigerenzer and Leibenstein’s x-efcient theory. This approach incorporates an understanding of the appropriate procedures, psychological and organization variables, decision-making capabilities and end-goals required to achieve optimality in production and, thereby, grow the wealth of nations, thereby enhancing the material wellbeing of the population at large. This also provides us with the tools to better identify economic inefciency and the conditions that contribute to it.
Original languageEnglish
Pages (from-to)167-179
Number of pages13
JournalMind and Society
Volume18
Issue number2
Early online date24 Oct 2019
DOIs
Publication statusPublished - 1 Dec 2019

Keywords

  • Bounded rationality
  • x-efciency
  • Fast and frugal heuristics
  • Efort variability
  • Satisfcing ·
  • Decision-making
  • Agency
  • Effort variability
  • Satisficing
  • x-efficiency

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