Essays on bounded rationality: Individual decision and strategic interaction

Economics is a social science which, therefore, focuses on people and on the decisions they make, be it in an individual context, or in group situations. It studies human choices, in face of needs to be fulfilled, and a limited amount of resources to fulfill them. For a long time, there was a convergence between the normative and positive views of human behavior, in that the ideal and predicted decisions of agents in economic models were entangled in one single concept. That is, it was assumed that the best that could be done in each situation was exactly the choice that would prevail. Or, at least, that the facts that economics needed to explain could be understood in the light of models in which individual agents act as if they are able to make ideal decisions. However, in the last decades, the complexity of the environment in which economic decisions are made and the limits on the ability of agents to deal with it have been recognized, and incorporated into models of decision making in what came to be known as the bounded rationality paradigm. This was triggered by the incapacity of the unboundedly rationality paradigm to explain observed phenomena and behavior. This thesis contributes to the literature in three different ways. Chapter 1 is a survey on bounded rationality, which gathers and organizes the contributions to the field since Simon (1955) first recognized the necessity to account for the limits on human rationality. The focus of the survey is on theoretical work rather than the experimental literature which presents evidence of actual behavior that differs from what classic rationality predicts. The general framework is as follows. Given a set of exogenous variables, the economic agent needs to choose an element from the choice set that is avail- able to him, in order to optimize the expected value of an objective function (assuming his preferences are representable by such a function). If this problem is too complex for the agent to deal with, one or more of its elements is simplified. Each bounded rationality theory is categorized according to the most relevant element it simplifes. Chapter 2 proposes a novel theory of bounded rationality. Much in the same fashion as Conlisk (1980) and Gabaix (2014), we assume that thinking is costly in the sense that agents have to pay a cost for performing mental operations. In our model, if they choose not to think, such cost is avoided, but they are left with a single alternative, labeled the default choice. We exemplify the idea with a very simple model of consumer choice and identify the concept of isofin curves, i.e., sets of default choices which generate the same utility net of thinking cost. Then, we apply the idea to a linear symmetric Cournot duopoly, in which the default choice can be interpreted as the most natural quantity to be produced in the market. We find that, as the thinking cost increases, the number of firms thinking in equilibrium decreases. More interestingly, for intermediate levels of thinking cost, an equilibrium in which one of the firms chooses the default quantity and the other best responds to it exists, generating asymmetric choices in a symmetric model. Our model is able to explain well-known regularities identified in the Cournot experimental literature, such as the adoption of different strategies by players (Huck et al. , 1999), the inter temporal rigidity of choices (Bosch-Dom enech & Vriend, 2003) and the dispersion of quantities in the context of di cult decision making (Bosch-Dom enech & Vriend, 2003). Chapter 3 applies a model of bounded rationality in a game-theoretic set- ting to the well-known turnout paradox in large elections, pivotal probabilities vanish very quickly and no one should vote, in sharp contrast with the ob- served high levels of turnout. Inspired by the concept of rhizomatic thinking, introduced by Bravo-Furtado & Côrte-Real (2009a), we assume that each per- son is self-delusional in the sense that, when making a decision, she believes that a fraction of the people who support the same party decides alike, even if no communication is established between them. This kind of belief simplifies the decision of the agent, as it reduces the number of players he believes to be playing against { it is thus a bounded rationality approach. Studying a two-party first-past-the-post election with a continuum of self-delusional agents, we show that the turnout rate is positive in all the possible equilibria, and that it can be as high as 100%. The game displays multiple equilibria, at least one of which entails a victory of the bigger party. The smaller one may also win, provided its relative size is not too small; more self-delusional voters in the minority party decreases this threshold size. Our model is able to explain some empirical facts, such as the possibility that a close election leads to low turnout (Geys, 2006), a lower margin of victory when turnout is higher (Geys, 2006) and high turnout rates favoring the minority (Bernhagen & Marsh, 1997).

Models and tools for value systems analysis in collaborative environments

Dissertation to obtain the degree of Doctor in Electrical and Computer Engineering, specialization of Collaborative Networks

Flood resilient housing recovery models: a theoretical case study in Maldives

Natural disasters are events that cause general and widespread destruction of the built environment and are becoming increasingly recurrent. They are a product of vulnerability and community exposure to natural hazards, generating a multitude of social, economic and cultural issues of which the loss of housing and the subsequent need for shelter is one of its major consequences. Nowadays, numerous factors contribute to increased vulnerability and exposure to natural disasters such as climate change with its impacts felt across the globe and which is currently seen as a worldwide threat to the built environment. The abandonment of disaster-affected areas can also push populations to regions where natural hazards are felt more severely. Although several actors in the post-disaster scenario provide for shelter needs and recovery programs, housing is often inadequate and unable to resist the effects of future natural hazards. Resilient housing is commonly not addressed due to the urgency in sheltering affected populations. However, by neglecting risks of exposure in construction, houses become vulnerable and are likely to be damaged or destroyed in future natural hazard events. That being said it becomes fundamental to include resilience criteria, when it comes to housing, which in turn will allow new houses to better withstand the passage of time and natural disasters, in the safest way possible. This master thesis is intended to provide guiding principles to take towards housing recovery after natural disasters, particularly in the form of flood resilient construction, considering floods are responsible for the largest number of natural disasters. To this purpose, the main structures that house affected populations were identified and analyzed in depth. After assessing the risks and damages that flood events can cause in housing, a methodology was proposed for flood resilient housing models, in which there were identified key criteria that housing should meet. The same methodology is based in the US Federal Emergency Management Agency requirements and recommendations in accordance to specific flood zones. Finally, a case study in Maldives – one of the most vulnerable countries to sea level rise resulting from climate change – has been analyzed in light of housing recovery in a post-disaster induced scenario. This analysis was carried out by using the proposed methodology with the intent of assessing the resilience of the newly built housing to floods in the aftermath of the 2004 Indian Ocean Tsunami.