This essay illustrates that if Savage's small world assumption is relaxed, one can construct a theory of bounded rationality that incorporates some of the insights from recent work in cognitive psychology. The theory can be used to explain why contracts are incomplete and the existence of...

We examine an evolutionary model of preferences in a society where resources are finite. Agents who develop better strategies for bargaining and trading will grow to dominate the population. We show that successful agents will have preferences that exhibit the "endowment effect". The social...

Many people believe that prevailing commission rates for residential real estate brokers are "too high" but do not offer a formal model. This paper presents a general equilibrium model of the housing market in which real estate brokers serve as matching intermediaries. We use this model to...

We study a class of boundedly rational choice functions, namely two-stage choosers, which operate as follows. The decision maker uses two criteria in two stages to make a choice. First she shortlists the top-2 alternatives, i.e. two ?nalists, according to one criterion. Next, she chooses the...

Classical deÖnitions of complementarity are based on cross price elasticities, and so they do not apply, for example, when goods are free. This context includes many relevant cases such as online newspapers and public attractions. We look for a complementarity notion that does not rely on price...

We characterize the following choice procedure. The decision maker is endowed with a preference and a similarity - a reflexive binary relation over alternatives. In any choice problem she includes in her choice set all options that are similar to her most preferred feasible alternative. Hence an...

"Labour market reforms that are designed to stimulate labour supply at the lower end of the wage distribution can never be precisely restricted to affect only the target group. Spillovers to and feedback from other segments of the labour market are unavoidable and may counteract the direct...

"We study the role of establishment-specific wage premiums in generating recent increases in West German wage inequality. Models with additive fixed effects for workers and establishments are fit in four distinct time intervals spanning the period 1985-2009. Unlike standard wage models,...

"The aim of the paper is to assess the heterogeneity of German affiliates in the Czech Republic and their mother companies in Germany. Applying cluster analysis to firm-level data from the unique IAB-ReLOC survey, we identify four main groups of firms that partition the sample by broad sectoral...

"Labour market reforms that are designed to stimulate labour supply at the lower end of the wage distribution can never be precisely restricted to affect only the target group. Spillovers to and feedback from other segments of the labour market are unavoidable and may counteract the direct...