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...

This chapter surveys the boundedly rational heterogeneous agent (BRHA) models of financial markets, to the development of which the authors and several co-authors have contributed in various papers. We give particular emphasis to role of the market clearing mechanism used, the utility function...

We develop a learning rule that generalises the well known fading memory learning in the sense that the weights attached to the available time series data are not constant and are updated in light of the forecast error(s). The underlying idea is that confidence in the available data will be low...