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Bounded or Unbounded Rationality? The Implication of Equate-to-differentiate Theory in Economic Behavior

Li Shu1,Bi Yanling1,2,Liang Zhuyuan1,Sun Yan1,2 Wang Zuojun1,2 and Zheng Rui1(1.Institute of Psychology,Chinese Academy of Sciences,Beijing 100101;2.The Graduate University of Chinese Academy of Sciences,Beijing 100039)  
The mainstream decision-making models,which follow the maximization rule,are based on the unbounded rationality hypothesis.The Equate-to-Differentiate(EtD) theory challenges these dominating models by proposing a bounded rationality approach.In this article,we illustrate the main interpretations of EtD to decision making problems across different research arenas(e.g.behavioral paradoxes or anomalies,cooperation in PD games,irrational consumer behaviors,and intertemporal choices).EtD is discussed and compared with other bounded rationality models(such as priority heuristic) under the frame work of dual-process theory.To make the EtD toward a better model in predicting and explaining behavior,we point out and discuss the limitations and further extensions of this model.
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