Journal Article
No. 2019-49 | December 06, 2019
Toward a cognitive science of markets: economic agents as sense-makers


Behavioral economics aspires to replace the agents of neoclassical economics with living, breathing human beings. Here, the author argues that behavioral economics, like its neoclassical counterpart, often neglects the role of active sense-making that motivates and guides much human behavior. The author reviews what is known about the cognitive science of sense-making, describing three kinds of cognitive tools—hypothesis-inference heuristics, stories, and intuitive theories—that people use to structure and understand information. He illustrates how these ideas from cognitive science can illuminate puzzles in economics, such as decision under Knightian uncertainty, the dynamics of economic (in)stability, and the voters’ preferences over economic policies. He concludes that cognitive science more broadly can enhance the explanatory and predictive quality of behavioral economic theories.

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: The Open-Access, Open-Assessment E-Journal, 13 (2019-49): 1–29.

Comments and Questions

Romar Correa - Samuel GB Johnson
December 13, 2019 - 14:50

I am on board with Samuel Johnson's essay. What follows are some responses. I will not engage with the category 'neoclassical' when I recollect that von Hayek's treatment of the elements of the theme over his extensive writings are unparalleled for their depth and breadth. Substituting 'neoclassical' for mainstream now, ...[more]

... we cannot underestimate enough the power of that theory to take on the best of challenges that can be thrown at it. In order of the subjects brought up in the paper, beliefs are going through the grinder even as we write. Knightian uncertainty was tackled not so long ago. Thomas Sargent tamed bounded rationality in rational expectations macroeconomics. Never mind that in letter and spirit it was a travesty of what Herbert Simon intended. Bayes' formula has long been a source of discomfort and scholars like Larry Samuelson, Itzhak Gilboa and David Schmeidler are offering alternatives like inductive inference in the axiom-theory-proof format.
My view is a direct engagement with the social rather than the individual is a superior platform on which to stand to engage with neoclassical economics. Mental models are, above all, SHARED. Sense-making is social. Also, history will illuminate. For instance, Joel Mokyr has recently demonstrated that it was not just new technologies that accounted for growth over 1500 to 1700 but the transformation in the preferences and beliefs of the people in the efficacy of science in offering pathways to superior commerce and manufacturing.