Maximization, learning, and economic behavior
Open accessAbstract
The rationality assumption that underlies mainstream economic theory has proved to be a useful approximation, despite the fact that systematic violations to its predictions can be found. That is, the assumption of rational behavior is useful in understanding the ways in which many successful economic institutions function, although it is also true that actual human behavior falls systematically short of perfect rationality. We consider a possible explanation of this apparent inconsistency, suggesting that mechanisms that rest on the rationality assumption are likely to be successful when they create an environment in which the behavior they try to facilitate leads to the best payoff for all agents on average, and most of the time. Review of basic learning research suggests that, under these conditions, people quickly learn to maximize expected return. This review also shows that there are many situations in which experience does not increase maximization. In many cases, experience leads people to underweight rare events. In addition, the current paper suggests that it is convenient to distinguish between two behavioral approaches to improve economic analyses. The first, and more conventional approach among behavioral economists and psychologists interested in judgment and decision making, highlights violations of the rational model and proposes descriptive models that capture these violations. The second approach studies human learning to clarify the conditions under which people quickly learn to maximize expected return. The current review highlights one set of conditions of this type and shows how the understanding of these conditions can facilitate market design.
The claims and statistics of this paper haven’t been checked yet.
Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.
Integrity signals
Registry
Cites
Statistics
Claims the paper makes
The claims and statistics of this paper haven’t been checked yet.
Run the check — free, no account needed. It reads the open-access text and checks the sources it cites.
Claims other papers make about this one
Each is checked against this paper’s own text: does it say what the citing paper says it does?
People will tend to underweight rare events, as rare events are underrepresented in most small samples.
“This model predicts people will tend to underweight rare events, as rare events are underrepresented in most small samples (Erev & Roth, 2014).”
From Open Challenges in Multi-Agent Security: Towards Secure Systems of Interacting AI Agents (2025) · cites this paper as Erev & Roth, 2014
Self-check
Percentages, sums and reported differences re-computed from the paper’s own numbers.
The self-check needs the paper’s full text.
Cites
Prospect Theory: An Analysis of Decision under Risk
Kahneman, D., & Tversky, A. (1979) · Econometrica · doi:10.2307/1914185 · Cited by 48,524 · see citing works
College Admissions and the Stability of Marriage
Gale, D., & Shapley, L. S. (1962) · The American Mathematical Monthly · doi:10.1080/00029890.1962.11989827 · Cited by 5,985 · see citing works
Young, H. P. (1993) · Econometrica · doi:10.2307/2951778 · Cited by 2,399 · see citing works
Flagged first, then by citations
Research works printed but not linked: 61
- Allais M (1953) Le comportement de l'homme rationnel devant le risque: Critique des postulats et axiomes de l'école Américaine. Econometrica 21(4):503-546.
- von Neumann J, Morgenstern O (1947) Theory of Games and Economic Behavior (Princeton Univ Press, Princeton), 2nd Ed.
- Savage LJ (1954) The Foundations of Statistics (Wiley, New York).
- Wakker PP (2010) Prospect Theory: For Risk and Ambiguity (Cambridge Univ Press, Cambridge, UK), Vol 44.
- Fehr E, Schmidt KM (1999) A theory of fairness, competition, and cooperation. Q J Econ 114(3):817-868.
- Bolton GE, Ockenfels A (2000) ERC: A theory of equity, reciprocity, and competition. Am Econ Rev 90(1):166-193.
- Gigerenzer G, Selten R (2002) Bounded Rationality: The Adaptive Toolbox (Mit Press, Cambridge, MA).
- Binmore K, Shaked A (2010) Experimental economics: Where next? J Econ Behav Organ 73(1):87-100.
- Gonzalez C, Lerch JF, Lebiere C (2003) Instance-based learning in dynamic decision making. Cogn Sci 27(4):591-635.
- Gilboa I, Schmeidler D (1995) Case-based decision theory. Q J Econ 110(3):605-639.
- Güth W, Schmittberger R, Schwarze B (1982) An experimental analysis of ultimatum bargaining. J Econ Behav Organ 3(4):367-388.
- Harrison GW, Hirshleifer J (1989) An experimental evaluation of weakest link/best shot models of public goods. J Polit Econ 97(1):201-225.
- Prasnikar V, Roth AE (1992) Considerations of fairness and strategy: Experimental data from sequential games. Q J Econ 107(3):865-888.
- Selten R (1975) Reexamination of the perfectness concept for equilibrium points in extensive games. Int J Game Theory 4(1):25-55.
- Gale J, Binmore KG, Samuelson L (1995) Learning to be imperfect: The ultimatum game. Games Econ Behav 8(1):56-90.
- Fudenberg D, Levine DK (1997) Measuring players' losses in experimental games. Q J Econ 112(2):507-536.
- Jehiel P (2005) Analogy-based expectation equilibrium. J Econ Theory 123(2):81-104.
- Pammi C, Srinivasan N (Elsevier, Amsterdam).
- Barkan R, Zohar D, Erev I (1998) Accidents and decision making under uncertainty: A comparison of four models. Organ Behav Hum Decis Process 74(2):118-144.
- Hertwig R, Barron G, Weber E, Erev I (2004) Decisions from experience and the weighting of rare events. Psychol Sci 15(8):534-539.
- Ungemach C, Chater N, Stewart N (2009) Are probabilities overweighted or under- weighted when rare outcomes are experienced (rarely)? Psychol Sci 20(4):473-479.
- Shafir S, Reich T, Tsur E, Erev I, Lotem A (2008) Perceptual accuracy and conflicting effects of certainty on risk-taking behaviour. Nature 453(7197):917-920.
- Di Guida S, Marchiori D, Erev I (2012) Decisions among defaults and the effect of the option to do nothing. Econ Lett 117(3):790-793.
- Busemeyer JR, Townsend JT (1993) Decision field theory: A dynamic-cognitive ap- proach to decision making in an uncertain environment. Psychol Rev 100(3):432-459.
- Weinstock S (1958) Acquisition and extinction of a partially reinforced running re- sponse at a 24-hour intertrial interval. J Exp Psychol 56(2):151-158.
- Bereby-Meyer Y, Roth AE (2006) The speed of learning in noisy games: Partial re- inforcement and the sustainability of cooperation. Am Econ Rev 96(4):1029-1042.
- Erev I, Barron G (2005) On adaptation, maximization, and reinforcement learning among cognitive strategies. Psychol Rev 112(4):912-931.
- Estes WK (1950) Toward a statistical theory of learning. Psychol Rev 57(2):94-107.
- Chen W, Liu SY, Chen CH, Lee YS (2011) Bounded memory, inertia, sampling and weighting model for market entry games. Games 2(1):187-199.
- Fiedler K (2000) Beware of samples! A cognitive-ecological sampling approach to judgment biases. Psychol Rev 107(4):659-676.
- Kareev Y (2000) Seven (indeed, plus or minus two) and the detection of correlations. Psychol Rev 107(2):397-402.
- Hertwig R, Pleskac TJ (2010) Decisions from experience: Why small samples? Cognition 115(2):225-237.
- Denrell J, March JG (2001) Adaptation as information restriction: The hot stove effect. Organ Sci 12(5):523-538.
- Einhorn HJ, Hogarth RM (1978) Confidence in judgment: Persistence of the illusion of validity. Psychol Rev 85(5):395.
- Hertwig R, Erev I (2009) The description-experience gap in risky choice. Trends Cogn Sci 13(12):517-523.
- Lejarraga T, Gonzalez C (2011) Effects of feedback and complexity on repeated decisions from description. Organ Behav Hum Decis Process 116(2):286-295.
- Yechiam E, Barron G, Erev I (2005) The role of personal experience in contributing to different patterns of response to rare terrorist attacks. J Conflict Resolut 49(3): 430-439.
- Jessup RK, Bishara AJ, Busemeyer JR (2008) Feedback produces divergence from prospect theory in descriptive choice. Psychol Sci 19(10):1015-1022.
- Barron G, Leider S, Stack J (2008) The effect of safe experience on a warnings' impact: Sex, drugs, and rock-n-roll. Organ Behav Hum Decis Process 106(2):125-142.
- Battalio R, Samuelson L, Van Huyck J (2001) Optimization incentives and coordination failure in laboratory stag hunt games. Econometrica 69(3):749-764.
- Skyrms B (2004) The Stag Hunt and the Evolution of Social Structure (Cambridge Univ Press, Cambridge, UK).
- Erev I, Grainer B, The 1-800 critique, counter-examples, and the future of behavioral economics. The Handbook on Methods of Modern Experimental Economics, eds Frechette G, Schotter A (Oxford Univ Press, Oxford), in press.
- Fudenberg D, Levine DK (1993) Self-confirming equilibrium. Econometrica 61(3): 523-545.
- Erev I, et al. (2010) The value of gentle enforcement on safe medical procedures. Qual Saf Health Care 19(5):1-3.
- Meyer J (2004) Conceptual issues in the study of dynamic hazard warnings. Hum Factors 46(2):196-204.
- Miron-Shatz T, Barron G, Hanoch Y, Gummerum M, Doniger GM (2010) To give or not to give: Parental experience and adherence to the Food and Drug Administration warning about over-the-counter cough and cold medicine usage. Judgm Decis Mak 5(6):428-436.
- Milgrom P (1998) Putting Auction Theory to Work (Cambridge Univ Press, Cambridge, UK).
- Engelbrecht-Wiggans R, Katok E (2007) Regret in auctions: Theory and evidence. Econ Theory 33(1):81-101.
- Kagel JH, Harstad RM, Levin D (1987) Information impact and allocation rules in auc- tions with affiliated private values: A laboratory study. Econometrica 55(6):1275-1304.
- Ariely D, Ockenfels A, Roth AE (2005) An experimental analysis of ending rules in internet auctions. RAND J Econ 36(4):891-908.
- Ockenfels A, Roth AE (2002) The timing of bids in internet auctions: Market design, bidder behavior, and artificial agents. AI Mag 23(3):79.
- Abdulkadiro glu A, Pathak PA, Roth AE, Sönmez T (2005) The Boston public school match. Am Econ Rev 95(2):368-371.
- Abdulkadiro glu A, Sönmez T (2003) School choice: A mechanism design approach. Am Econ Rev 93(3):729-747.
- Abdulkadiroglu A, Pathak PA, Roth AE (2009) Strategy-Proofness Versus Efficiency in Matching with Indifferences: Redesigning the New York City High School Match (National Bureau of Economic Research, Cambridge, MA), No. w14864.
- Roth AE (2008) What have we learned from market design? Econ J 118(527):285-310.
- Gopher D, Weil M, Bareket T (1994) Transfer of skill from a computer game trainer to flight. Hum Factors 36(3):387-405.
- Yechiam E, Erev I, Gopher D (2001) On the potential value and limitations of emphasis change and other exploration-enhancing training methods. J Exp Psychol Appl 7(4): 277-285.
- Teodorescu K, Erev I (2014) On the decision to explore new alternatives: The co- existence of under-and over-exploration. J Behav Decis Making 27(2):109-123.
- Erev I, Ingram P, Raz O, Shany D (2010) Continuous punishment and the potential of gentle rule enforcement. Behav Processes 84(1):366-371.
- Rapoport A, Seale DA, Erev I, Sundali JA (1998) Equilibrium play in large group market entry games. Manage Sci 44(1):119-141.
- Sandholm WH (2002) Evolutionary implementation and congestion pricing. Rev Econ Stud 69(3):667-689.
Cited by
Sorted by citations
Schulze, C., & Hertwig, R. (2021) · Cognition · doi:10.1016/j.cognition.2020.104580 · Cited by 36 · see citing works
Optimal design of experiments to identify latent behavioral types
Balietti, S., Klein, B., & Riedl, C. (2021) · Experimental Economics · doi:10.1007/s10683-020-09680-w · Cited by 18 · see citing works
Open Challenges in Multi-Agent Security: Towards Secure Systems of Interacting AI Agents
de Witt, C. S., Krawiecka, K., Krawczuk, I., Hagag, B., Anderson, W. L., Belcak, P., Bucknall, B., Cai, X., Chopra, A., Cohen, D., et al. (2025) · arXiv · doi:10.48550/arxiv.2505.02077 · Cited by 2 · see citing works
- Authors
- Erev, I., & Roth, A. E.
- Affiliations
- Technion – Israel Institute of Technology (IL)
- Stanford University (US)
- Venue
- Proceedings of the National Academy of Sciences
- Publisher
- National Academy of Sciences
- Published
- 2014-07-14
- Volume
- 111
- Issue
- supplement_3
- Pages
- 10818-10825
- ISSN
- 0027-8424 (ISSN-L)
- 1091-6490
- PMC
- PMC4113920
- OpenAlex
- W2001436017
- Cited by
- 155
- References
- 3
- Citations by year
- 2026: 9 · 2025: 10 · 2024: 10 · 2023: 14 · 2022: 9 · 2021: 13 · 2020: 16 · 2019: 15 · 2018: 12 · 2017: 16 · 2016: 12 · 2015: 12 · 2014: 7
- FWCI
- 1.48
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Proceedings of the National Academy of Sciences (publishedVersion)
- Europe PMC (PubMed Central) (publishedVersion)
- PubMed Central (publishedVersion)
- PubMed (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Digital Access to Scholarship at Harvard (DASH) (Harvard University) (submittedVersion, cc-by)
- Funders
- National Science Foundation
- Israel Science Foundation
- Topics
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Safety Research › Experimental Behavioral Economics Studies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic Theory and Institutions
- Keywords
- rationality assumption, bounded rationality, learning, expected return maximization, experience effects, behavioral economics, market design, economic institutions, judgment and decision making, descriptive model
- MeSH terms
- Adaptation, Psychological, Choice Behavior, Decision Making, Game Theory, Humans, Learning, Reinforcement, Psychology, Feedback, Physiological
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
Are you an author, or do you see a problem with this page? Request a review