Real-World Decision Making

Coming soon:

The first and only encyclopedia to focus on the economic and financial behaviors of consumers, investors, and organizations, including an exploration of how people make good—and bad—economic decisions.


• Contains an informative introductory essay that familiarizes students with the various aspects of behavioral economics

  • Provides a list of additional readings for those interested in learning more about the topic

• Includes cross-references in each entry to help readers make connections between related topics

• Defines key terms that are likely to be unfamiliar to those without advance knowledge of the subject

• Helps readers identify and study particular entry categories through accompanying Topic Finders




With the cessation of operations for the journal Studies in Emergent Order C+T have agreed to host and make available SIEO’s full back catalogue of papers comprising a Who’s Who of Austrians and their sympathizers.

Propriety and Prosperity: New Studies on the Philosophy of Adam Smith

Now that the ms has been shipped off to the publisher here is the finalized lineup:

Foreword — Vernon Smith

Adam Smith as a Scottish Philosopher — Gordon Graham

Friendship in Commercial Society Revisited: Adam Smith on Commercial Friendship — Spyridon Tegos

Adam Smith and French Political Economy: Parallels and Differences — Laurent Dobuzinskis

Adam Smith: 18th Century Polymath — Roger Frantz

 One Adam Smith — David Brat

Indulgent Sympathy and the Impartial Spectator — Joshua Rust

 Adam Smith on Sensory Perception: A Sympathetic Account — Brian Glenney

Adam Smith on Sympathy: From Self-Interest to Empathy — Gloria Zúñiga y Postigo

What My Dog Can Do: On the Effect of The Wealth of Nations I.ii.2 — Jack Weinstein

Metaphor Made Manifest: Taking Seriously Smith’s “Invisible Hand” — Eugene Heath

The ‘Invisible Hand’ Phenomenon in Philosophy and Economics — Gavin Kennedy

Instincts and the Invisible Order: The Possibility of Progress — Jonathan B. Wight

The Spontaneous Order and the Family — Lauren K. Hall

Smith, Justice and the Scope of the Political — Craig Smith


Hayek in The Stanford Encyclopedia of Philosophy

It’s about time that Hayek had a dedicated entry in the SEP. I’ve been “lobbying” for FAH’s inclusion for some time now. Here is the stated brief of the article:

This essay concentrates on this enduring theme [spontaneous order] of Hayek’s work, and a question: why would the scholar who did more than anyone in the twentieth century to advance our understanding of price signals and the emergence of spontaneous orders also be driven to claim that social justice is a mirage?

This is fine but it really should only be a subsection to an entry that has FAH as the title. It’s a shame that a broader conspectus isn’t on offer much like the entries on Popper and Berlin. How can one  appreciate the depth of Hayek’s social theory without taking cognizance of The Sensory Order (1952)? – there is a link between Hayek’s philosophical psychology and spontaneous order. Also missing, again from 1952, is The counter-revolution of science: Studies on the abuse of reason – surely an important work for Hayek’s philosophy of social science.

There is nothing wrong with the entry – it’s just disappointing for the novice to Hayek (or the preconceived caricatures that abound) that Hayek’s full breadth and depth is not made apparent (maybe there are supplementary articles in the works). And why is there a reference under “Other Internet Resources” to Matt Zwolinski’s “Libertarianism” in the Internet Encyclopedia of Philosophy? Arguably one of the best internet resources (if not the best) is Greg Ransom’s aptly titled site Taking Hayek Seriously.

Spontaneous order, as a species of emergent phenomena, is not at all dealt with in an analytical way as befits the SEP. The concept is perhaps Hayek’s most problematic and contentious concept notwithstanding being one of the slipperiest of terms within philosophy at large. The concept is a critical element of the five-faceted cornerstone of Hayek’s philosophy of social science: the others being complexity, the dispersion of knowledge, rationality and methodological individualism.

Speaking of long overdue SEP entries how about Herbert Simon and Michael Oakeshott?



Taleb on Skin in the Game

Nassim Taleb talks with EconTalk host Russ Roberts about his recent paper (with Constantine Sandis) on the morality and effectiveness of “skin in the game.” When decision makers have skin in the game–when they share in the costs and benefits of their decisions that might affect others–they are more likely to make prudent decisions than in cases where decision-makers can impose costs on others. Taleb sees skin in the game as not just a useful policy concept but a moral imperative. The conversation closes with some observations on the power of expected value for evaluating predictions along with Taleb’s thoughts on economists who rarely have skin in the game when they make forecasts or take policy positions.


Constructivist and Ecological Rationality in Economics

All those interested in extended mind/externalist/situated type thought should be aware of the field of Behavioral Economics (BE) in general and the work of Vernon Smith in particular. BE is a body of literature that was ploughing this trough some twenty years before the hypothesis of extended cognition took root in cognitive science. It is interesting to note that the Clark and Chalmers thesis took some inspiration from Herbert Simon (Clark & Chalmers, 1998). Simon writes:

Human beings, viewed as behaving systems, are quite simple. The apparent complexity of our behavior over time is largely a reflection of the complexity of the environment in which we find ourselves . . . [I] would like to view this information-packed memory less as part of the organism than as part of the environment to which it adapts . . . (Simon, 1996, 53, cf.8, 62, 99, 110).

But what is remarkable about this is that Simon in turn credits and endorses Hayek for this view:

No-one has characterized market mechanisms better than Friedrich von Hayek . . . [His] defense did not rest primarily upon the supposed optimum attained by them but rather upon the limits of the inner environment – the computational limits of human beings (Simon, 1996, 34).

What Simon has grasped is the corollary to Hayek’s spontaneous order externalism – “cognitive closure” (or in Simon’s terminology “bounded rationality” was a key presupposition to all Hayek’s work and set out in its most technical form in Hayek (1952/1976). Cognitive closure is the idea that the human mind is constitutionally delimited – a condition that can be ameliorated if the social and artifactual world functions as a kind of distributed extra-neural knowledge store.

Through the work of Vernon Smith (the provenance going back to his classical namesake, Adam), ecological or situated/bounded rationality has received its most recent and finest articulation. Unlike some Nobel Laureates (no names) Vernon is not a prima donna. He is exceedingly approachable, very kind, generous, modest and open-minded. I was lucky enough to meet  Vernon in Tucson and he put me at ease very quickly as did his charming wife. Recently, Vernon gave me an inscribed copy of his Rationality in Economics: Constructivist and Ecological Forms along with his autobiography Discovery – A Memoir, the former deeply informing my work; the latter interest taking wing from my talking to him about his Kansas youth.

Nobel Lecture



Economics, cognitive science and social cognition

Here is the intro to Don’s paper:

This essay concerns the role of economics in the interdisciplinary study of social cognition. Increasingly many economists believe that economics has such a role. Most who hold this opinion do so because they think that, to some extent, important parts of microeconomics should collapse into psychology. They think this in part because they are convinced that most human motivation has turned out to be irreducibly social, whereas traditional microeconomics depended for maintenance of its distance from psychology on modeling people as if their social relations were incidental rather than constitutive. Bruni (2005) is a representative instance of the newer view.

The perspective I will defend here agrees that economics can and should contribute to the understanding of social cognition. Economics is an important part of a complementary suite of cognitive and behavioral sciences that accomplish more together than they could do in isolation. However, I do not believe that any part of economics should be collapsed into psychology, and I reject the widespread opinion that economics for much of its history ‘went wrong’ by ignoring the social dimension of value.

I will aim to do three things in the paper. First, I will describe the origins of the widespread misperception. As will be seen, both the cognitive revolution of the 1960s and the later interanimation of cognitive science and social theory are important parts of this story (see also Angner & Loewenstein, forthcoming). Then I will explain why I think the perception is confused. Finally I will indicate why all of this matters: economics can make its distinctive and important contribution to our understanding of social cognition (and social behavior) only if it is recognized to have a different role from that of psychology. Economics is not equivalent to the psychology of valuation, though there is (of course) such a psychology, which is partly social, and economics helpfully informs it. It would reduce confusion, I believe, if much of what is now called ‘behavioral economics’ were referred to as ‘psychology of valuation’ instead.The confusions I aim to dispel are historical in origin. Thus much of the essay will be about what economists call ‘history of thought’. Let me therefore note that my motives are not the historian’s. That is, I am not concerned per se with the way in which historical thinkers represented their own intentions and views to themselves. I am instead concerned with how we should critically regard previous episodes of reasoning in light of what we think we have learned that participants in these past episodes did not know. To illustrate with a simple example: the question ‘Why did Copernicus set the scientific revolution in motion?’ is not a question for the intellectual biographer, because Copernicus never imagined he was doing any such thing; but it is a perfectly good question for the historian of science who knows how events turned out and what led to what.