These two core articles together comprise Psychological Economics Theory (also referred to as Give & Take Economics), a generalized model of decision-making under uncertainty.
This first paper delineates foundations and an overview of the overall theory and establishes a new framework of individual choice. Conventional single-value lottery outcomes are omitted; agents instead face multi-period matched outcomes that contain personal total benefit (PTB) and personal total cost (PTC). They optimize an overall weighted outcome rank dependent value function against personal ‘psychological trade-off constraints’. The conventional notion of economizing as an allocation of scarce resources is replaced by a dynamic individual psychological process of continuously balancing PTB and PTC. All decision-relevant information is therefore endogenous, and the concept of ‘testing’ is introduced, which precludes both equilibrium and persistent non-systematic disequilibrium.
The second, follow-on paper, subtitled “Interaction Between Agents”, derives two fundamental outcome dynamics of interaction—joint interactions and disjoint interactions, which address observations that are difficult to explain with equilibrium models, such as repeated boom/bust and fad/counter-fad cycles. A generalized Give & Take analytical construct is established that distils economic, psychological, sociological and political theories into a unified pragmatic framework, which is theoretically grounded and more easily applied in integrated fashion. Social policy and institutions are Pareto Optimal when they facilitate ‘coupling’ of PTB and PTC. Four Axioms of Freedom are provided as the basis for a FreeAccountable Society, a potential next phase in the evolution of modern capitalist democracies.
Tremendous opportunity exists for further application of this cross-disciplinary model.
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