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George Loewenstein, a prominent behavioral economist, recalls thatIn 1994, when Thaler, Camerer, Rabin, Prelec and I spent the year at the Center for Advanced Study in the Behavioral Sciences, we had a meeting to make a kind of final decision about what to call what we were doing. Remarkably, at that time, the name behavioral economics was not yet well established. I actually advocated “psychological economics,” and Thaler was strong on behavioral economics. I'm kind of glad that he prevailed; I think it's a better, catchier, label, although it creates confusion due to association with Behaviorism. (G. Loewenstein, personal email to author, June 16, 2008)

Making links between micro and macro levels has been problematic in the social sciences, and the literature in strategic management and organization theory is no exception. The purpose of this chapter is to raise theoretical issues in developing micro-foundations for strategic management and organizational analysis. We discuss more general problems with collectivism in the social sciences by focusing on specific problems in extant organizational analysis. We introduce micro-foundations to literature by explicating the underlying theoretical foundations of the origins of individual action and interaction. We highlight opportunities for future research, specifically emphasizing the need for a rational choice programme in management research.

For long now the economics profession has boasted of Economics as the Queen of the Social Sciences. That was the era when Economics matured under the shade of a classical notion of the physical universe, whose properties it imported into rational choice. Economics emulated the mathematical methods of optimization and equilibrium behavior and overarched these methods between microeconomics and macroeconomics in the areas of economic growth, public choice theory, rational expectations, constitutional economics, and many others. Each of these branches of economics remained entrenched in rational choice behavior exported from the microlevel to institutional and collective norms. In this way, a unique and universal premise of self-interest, individualism and independence, and completeness of rational choice assumptions was extended to the institutional level. Thus, the rational choice behavior of individualism became the principle of methodological individualism of liberal institutionalism.

This chapter explores a descriptive theory of multidimensional travel behaviour, estimation of quantitative models and demonstration in an agent-based microsimulation.

A descriptive theory on multidimensional travel behaviour is conceptualised. It theorizes multidimensional knowledge updating, search start/stopping criteria and search/decision heuristics. These components are formulated or empirically modelled and integrated in a unified and coherent approach.

The theory is supported by empirical observations and the derived quantitative models are tested by an agent-based simulation on a demonstration network.

Based on artificially intelligent agents, learning and search theory and bounded rationality, this chapter makes an effort to embed a sound theoretical foundation for the computational process approach and agent-based micro-simulations. A pertinent new theory is proposed with experimental observations and estimations to demonstrate agents with systematic deviations from the rationality paradigm. Procedural and multidimensional decision-making are modelled. The numerical experiment highlights the capabilities of the proposed theory in estimating rich behavioural dynamics.

This paper argues that since the utility function representation of the individual is derived from standard rationality theory, the view that rationality is bounded implies that individuality should be seen to be bounded as well. The meaning of this idea is developed in terms of two ways in which individuality is bounded, with one bound associated with bounded rationality in Kahneman and Tversky’s prospect theory and another bound associated with bounded rationality in Simon’s thinking. The two bounds on individuality are argued to be employed in agent-based modeling and social identity theory. How bounded individuality might be formally modeled is illustrated in an account of Kirman’s Marseille fish market analysis.

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm management.Design/methodology/approach — The empirical research is based on a survey of the management of firms operating in the Baltic States. The survey contains information on the perceived extent of unreported activities and on a large number of firm-, sector-, and country-specific factors. A principal component analysis identifies clusters of motives for unreported activity. Regression analyses ascertain the importance of motives individually and as principal components on the extent of unreported activities.Findings — Both individualistic and non-individualistic motives are important for the prevalence of unreported activities. The individualist motives refer to the management being solely profit-oriented and self-interested. Among possible non-individualist motives, measures of government performance and perceptions of reciprocity towards the government appear to play important roles for the extent of unreported activities, but broader societal norms may also play a role.Research limitations/implications — The study considers the perceptions that managers have of unreported activities and other features. These perceptions are subjective and subject to substantial uncertainty. All results should be interpreted in light of the subjective nature of the survey answers.Social implications — Taken literally, the results suggest that stronger government performance is associated with a reduction in unreported activities, at least as perceived by the management. Broader societal developments may also be of importance.Originality/value — The inclusion of variables capturing individualistic as well as non-individualistic motives gives a comprehensive picture of factors behind unreported activities. We employ principal component analysis which allows us to cluster individual survey answers and to produce composite measures of different explanatory factors.

This chapter conducts a systematic comparison of behavioral economics’s challenges to the standard accounts of economic behaviors within three dimensions: under risk, over time, and regarding other people. A new perspective on two underlying methodological issues, i.e., inter-disciplinarity and the positive/normative distinction, is proposed by following the entanglement thesis of Hilary Putnam, Vivian Walsh, and Amartya Sen. This thesis holds that facts, values, and conventions have inter-dependent meanings in science which can be understood by scrutinizing formal and ordinary language uses. The goal is to provide a broad and self-contained picture of how behavioral economics is changing the mainstream of economics.