Counterfactual Thinking and Attribute Substitution in Economic Behavior

This paper discusses how counterfactual thinking can be incorporated into behavioral economics by
relating it to a type of attribution substitution involved in choices people make in conditions of
Knightian uncertainty. It draws on Byrne’s ‘rational imagination’ account of counterfactual thinking,
evidence from cognitive science regarding the forms it takes, and identifies types of attribution
substitution specific to economic behavior. This approach, which elucidates the reflective stage of
causal reasoning, is relevant for the explanation of hypothetical causal rules suitable for diverse
tasks such as planning, expectations and mental simulations and for behavioural change
interventions, which take into account people’s social and institutional embeddedness. The paper
closes with a discussion of how this implies a specifically social Homo sapiens individual conception.

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