1. Introducing a spatial zone model that captures the relational quality of interactions.
2. Quantifying trust, intention, and memory as dynamic, interdependent variables.
3. Integrating strategic ambiguity as a formal part of decision-making.
4. Enabling multi-layered simulation of real economic relationships, from labor dynamics to startup-investor relations.
Thus, RZE positions itself not as a rejection of classical game theory, but as its complex, adaptive, and relational evolution---capable of engaging with the messiness of real-world economic life.
B. Behavioral Economics and Bounded Rationality (Kahneman, Thaler)
Behavioral economics emerged as a response to the limitations of classical economic theory, particularly its assumptions about human rationality. Daniel Kahneman, Amos Tversky, and Richard Thaler introduced a more psychologically realistic model of decision-making by incorporating empirical insights about cognitive biases, heuristics, and the limits of human information processing. Their work helped to problematize Homo economicus, emphasizing that economic agents are not always rational, consistent, or utility-maximizing.
1. Daniel Kahneman (Prospect Theory, System 1 and 2 Thinking)
Kahneman and Tversky's Prospect Theory (1979) revolutionized our understanding of decision-making under risk by showing that people value gains and losses asymmetrically---typically exhibiting loss aversion, reference dependence, and probability distortion.
Furthermore, in Thinking, Fast and Slow (2011), Kahneman distinguishes between System 1 (fast, intuitive) and System 2 (slow, analytical) thinking, outlining how many economic decisions are governed by the former, often leading to systematic errors in judgment.
Relevance and limitation in economic modeling:
Recognizes bounded rationality and psychological complexity.
Critiques the static utility-maximization assumption in traditional microeconomic theory.
However:
The framework remains individual-centric, not relational or interactive.
It does not account for strategic ambiguity or the temporal evolution of relationships.
Prospect theory is rarely integrated into multi-agent dynamic systems, leaving a gap in its applicability to relational or collective behaviors in markets or negotiations.
2. Richard Thaler (Nudge Theory, Mental Accounting, Endowment Effect)
Thaler's contributions expand behavioral insights into applied economics, especially public policy and finance. Key ideas include:
Mental accounting: People categorize and treat money differently depending on subjective frames.
Endowment effect: People value things they own more highly than equivalent things they do not own.
Nudge theory (with Sunstein): Subtle changes in choice architecture can significantly influence behavior without altering economic incentives.
These ideas are foundational in designing real-world interventions, such as retirement savings plans or consumer protections.
