Cognitive Economics

1
Cognitive Economics

• Definition Taking seriously data other than
  actual choices in the wild.
• Must be linked back to actual choices in the
  wild.
• Analogous to Cognitive Psychology
• vs. B.F. Skinner.
• Complementary to Behavioral Economics, since
  loosening the constraints on the utility function
  raises the value of additional data.

2
Examples of Cognitive Economics

• Experimental Economics.
• Neuroeconomics.
• Survey measures of expectations
• Survey measures of the implicit theories people
  have of how the economy works
• Survey measures of preference parameters based on
  hypothetical choices.
• Happiness research.

3
Theoretical Orientation

• Cognitive Economics looks for explanations in
  this order
• Standard economic explanations.
• Bounded cognitionpeople having finite IQs
• Exotic preferences
• By contrast, in practice, much of the
  research in Behavioral Economics has reversed the
  order of (2) and (3), going very quickly to
  explanations based on exotic preferences.

4
Why the theoretical orientation matters

• Notes
• Explanations based on bounded cognition imply
  that even in the absence of externalities,
  welfare can often be improved by economic
  education, setting up appropriate default choices
  for people, or providing disinterested, credible
  advice.
• Explanations based on exotic preferences imply
  that individuals are already maximizing, so that
  welfare improvements must come from dealing with
  externalities.