Xavier Gabaix

Xavier Gabaix, assistant professor of economics at Massachusetts Institute of Technology, will research a model of bounded rationality for use in economics, finance, and policy. In the traditional rational model, people think without limitations, have a perfect understanding of the world around them, and pursue their goals under optimal circumstances. In reality, however, people do not always make the best possible decisions; they usually make an educated guess and hope for the best, especially when time constraints preclude a complete analysis of every conceivable option. Gabaix will work on developing a model to predict the form of such educated guesses. What information do people use? How is that information framed and manipulated? How do individuals make analogies between problems? How do individuals decide when to stop working on a problem and make a final decision? Gabaix's study will address these difficult questions about human cognition as a means of finding a middle ground between the extremes of perfect rationality and unthinking choice.