Analogies and Theories: The Role of Simplicity and the Emergence of Norms

We consider the dynamics of reasoning by general rules (theories) and specific cases (analogies). When an agent faces an exogenous process, we show that, under mild conditions, if reality happens to be simple, the agent will converge to adopt a theory and discard analogical thinking. If, however, reality is complex, the agent may rely on analogies more than on theories. By contrast, when the process is generated by agents' predictions, convergence to a theory is much more likely, as in the emergence of norms in a coordination game. Mixed cases, involving noisy endogenous processes are likely to give rise to complex dynamics of reasoning, switching between theories and analogies.