Discussion Paper

No. 2019-10 | February 11, 2019
Toward a cognitive science of markets: economic agents as sense-makers


Behavioral economics characterizes decision-makers using psychologically-informed models. Cognitive science produces psychologically-informed models. Why don’t these disciplines talk more? Here, the author presents several arguments for why cognitive science should inform behavioral economics—it characterizes internal psychological states, builds a richer conception of human nature, pays equal attention to cognition’s successes and failures, embraces multidisciplinary insights, and avoids blind spots produced by behavioral economics’ intellectual lineage. The author illustrates these principles using the cognitive science of sense-making—how humans understand information—including mental tools such as heuristics, stories, and theories. The science of mind can produce new insights to enrich economics.

JEL Classification:

A12, B4, D01, D11, D7, D8, D9, E7, G4


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Cite As

Samuel G.B. Johnson (2019). Toward a cognitive science of markets: economic agents as sense-makers. Economics Discussion Papers, No 2019-10, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2019-10

Comments and Questions

Ekkehart Schlicht - Social psychology may be of relevance, too
March 17, 2019 - 09:56

This is a very stimulating contribution offering a treasure-trove of references.

Let me add some comments from my (slightly different) point of view.

I would think that social psychology is as relevant as cognitive science for the problems discussed in the paper. The analysis of “causal forks” ...[more]

... and “causal chains” is a central topic in classical attribution theory (Heider, Kelley), which is usually considered part of social psychology. The classical reference would be the book “Social Psychology” by Solomon Asch. Asch points out that cognition and emotion are closely connected. This connection is sometimes lost when focusing mainly on cognition.

You seem not to address the orthodox position of economists regarding the use of heuristics etc., but maybe a paragraph on this topic may be useful. Alfred Marshall, Armen Alchian and evolutionary economists have taken that position. Here it is assumed that people follow routines and heuristics, but they change them: They copy successful routines, drop unsuccessful ones, and vary behavior. So there is variation and selection, and in the end successful behaviors survive. The Friedman-Savage example of the expert billiard player who cannot apply the laws of physics to the movements of the billard balls but plays nevertheless as if could do so, epitomizes this.

I think that this is, theoretically speaking, a very strong argument for side-stepping behavioral considerations in many economic settings, yet I think that it is misleading because there are many examples where we observe behaviors that contradict with that stance. In order to understand the persistence of suboptimal, and even costly, routines, I have urged in my book “On Custom in the Economy” that social psychology (including cognitive elements) have to be brought into economics, very much in the Asch tradition (where sense-making is central, by the way). I attach the preface to the 2018 paperback edition.

Magda Osman, Queen Mary University of London, UK - Referee report 1
May 20, 2019 - 12:57

see attached file

Richard Bronk, London School of Economics and Political Science, UK - Referee report 2
May 21, 2019 - 09:46

see attached file