D.P. T-Shot Reference Blog

Rational Choice Theory, Phin Upham, Economics

Part 3 of this article on economics by Phin Upham.

If we take the view that RCT are being roughly truthful, and simply being too simplistic, we might internalize more factors from the world and make the model more “realistic.”  Second-cut descriptive models might therefore incorporate, at the expense of mathematical elegance and simplicity, the positing of “quasi-rational motives for individual actors and make the model dynamic with adaptive learning feed-backs.  A third cut descriptive model might try to better understand a richer panoply of human motivations and emotions so that what is deemed ‘quasi-rational’ behavior might indeed be more fully rationalized.” (decision making, p15).

There seem to be two points in which some literature diverges from a classical Rational Choice Theory model with its maximization of ranked preferences and ranked options at its heart and a clear view of the world as its perspective.  The first is the claim that there is no clear way to model a rational way to act, rather we can act in keeping with rationally by acting in many different ways.  Tversky and Kohneman, Simon, Hernstein, Bell, and recent psychological literature (dealing with the importance of peaks and ends) have all suggested that there are many ways to formulate rational behavior.  Tversky and Kohnemon (86), for example, argue that people behave rationally with the stipulation that they are risk adverse with proportionally large sums (to their net worth) and risk hungry with proportionally small sums.  Bell includes some psychological dimensions such as regret and disappointment to the calculus of human decision making.  With competing understandings of rationality we may find that a number seem to make sense without invalidating the meaning of a rational framework. 

Click here to read more from this author.