Chapter 5 - Understanding rational inefficiency: A scientific basis for economic failure and success

Rationality in decision making is commonly assessed by comparing choice performance against normative standards. We argue that such a performance-centered approach blurs the distinction between rational choice and adaptive behavior. Instead, rational choice should be assessed with regard to the way individuals make analytic decisions. We suggest that analytic decisions can be made in two different modes in which control processes are directed at different levels. In a RUN mode, thought is directed at controlling the operation of a decision strategy. In the JUMP mode, the individual analyses the interpretation of the decision situation as well as the appropriateness of alternative strategies. We suggest that a decision should be considered “rational” when an individual is able to switch between these modes and balance their interaction.

Second best toll pricing within the framework of bounded rationality

This paper will examine how pragmatism has created rational choice behavior in candidate selection. Pragmatism has resulted in single candidates for local heads, which makes local democracy uncompetitive. The research method used is an explanatory approach that aims to explain how pragmatism as a rational choice behavior in the local government head election. Data were collected, compiled and analyzed using Nvivo 12 Plus software. The results showed that political parties as political institutions are very pragmatic in the selection of candidates for local heads. The incumbents utilized the support of almost all political parties based on clientelistic and programmatic relations. This has led the candidate selection process to prioritize pragmatic aspects, especially financial support, acceptability, and electability of candidates. The candidate selection process no longer determines ideological values at the official candidate selection process. Financial support for candidates has the highest priority for political parties in determining their endorsements in regional head elections. Meanwhile, the acceptability aspect refers to the dominant acceptance of all elites, cadres, and the mass base of supporters of the selected candidate. Electability is also a priority, although it is considered that electability trends are dynamic and able to change based on the level of competition. The behavior of political party elite actors and local head candidates eventually forms a rational choice pattern that makes local democracy backsliding.

The standard random utility model assumes a fully rational and compensatory choice behaviour. However, various research studies have proven that non-compensatory /semi-compensatory choice behaviour is more realistic. This paper proposes a semi-compensatory framework for the discrete choice model that combines probabilistic choice set formation along with implicit choice constraints in choice making. It combines the Independent Availability Logit (IAL) with Implicit Constrained Multinomial Logit model (CMNL). The model is applied to investigate the mode choice behaviour of the Ottawa-Gatineau regions of Canada’s capital by using the household travel survey data. The explanatory power and elasticity measures of the proposed model are compared with IAL and MNL models. It is found that the IAL-CMNL model outperforms both IAL and MNL models and can reproduce the choice set formation process more effectively. The empirical investigation shows that the IAL-CMNL model results in relatively higher tolerance and softer constraints for cut-off violations compared to the IAL model. Elasticity calculations and outcomes of this research highlight the importance of capturing choice set formation and constrained choice behaviour in the choice modelling.

Homo Ludens: Social rationality and political behavior

PurposeHousing choice is always a complicated decision with its dual functions as a roof over the head and as an investment good. This paper aims to investigate the boundedly rational behaviours that affect the housing choice three bounded behaviours play roles in explaining the decision-making behaviour of homebuyers when they acquire/sell a property. These behaviours are endowment effect, loss aversion and herding, which have implications on the decision-making process.Design/methodology/approachThe research is based on cross-sectional questionnaires and collected from 587 respondents. Factor analysis and reliability tests were used to identify the latent construct of bounded rational housing choice behaviour. In the meantime, the study used one-way analysis of variance (ANOVA) to examine whether there are any differences in the housing choice based on the respondents’ demographic backgrounds.FindingsThe findings indicated that a total of 11 items were reduced to three factors that accounted for the decision-making in housing choice. There are significant differences in herding behaviour amongst respondents with different level of education and their purpose of looking for a house.Research limitations/implicationsThis paper helps to identify latent constructs that shed light on the housing choice, especially on the bounded rational behaviour.Originality/valueThis is one of the few studies to explore boundedly rational behaviours in housing choice from the angle of homebuyers. Previous studies addressed housing choice in terms of price, demand and supply in general but not on individual homebuyers. The results will be useful to developers, policymakers, homebuyers as well as scholars in understanding the decision-making process in housing choice.

جامعه‌شناسی معاصر، از بسیاری جهات بر دوش نظریه‌های کلاسیک خود استوار است و هنوز به قوت از آن‌ها بهره می‌برد. پیدایش پدیده‌های جدید و نیز شتاب فزاینده‌ آن‌ها در جوامع امروزی، تبیین جامعه‌شناسان کلاسیک است. رشد کمی و کیفی علم و به‌ویژه علوم انسانی در صد سال اخیر چنان بوده که رشته‌های مختلف علمی را به تأثیر و تأثر متقابل از یافته‌های یکدیگر واداشته است. این‌ها همگی، عواملی است که کار جامعه‌شناسان امروزی را از کار گذشتگان آن‌ها متفاوت می‌سازد. در میان این نظریه‌ها، نظریه انتخاب عقلانی و در این‌جا به‌ویژه نظریه مایکل هکتر، با تلفیق جنبه‌های مختلف نظریه‌های اجتماعی به ترکیبی خلاق و پویا دست یافته است. هکتر با ترکیب سطوح خرد و کلان و نیز تحلیل وجوه مختلف سازمان اجتماعی، نقش مؤثری در پیشبرد نظریه جامعه‌شناختی به‌طور کلی و نظریه انتخاب عقلانی به‌طور خاص داشته است. اهمیت این جامعه‌شناس در جامعه‌شناسی معاصر، بررسی و شناخت اندیشه‌های وی را ضروری می‌سازد. در این مقاله، ابتدا به تاریخچه و بنیان‌های فکری نظریه‌ انتخاب عقلانی می‌پردازیم، سپس به‌طور خاص بر آراء و نظریه‌های گوناگون مایکل هکتر متمرکز می‌شویم. در پایان نیز، اهم انتقادات وارده بر نظریه انتخاب عقلانی را مورد بررسی قرار می‌دهیم.

This chapter provides a general framework for studying individual political decision-making that applies to both everyday citizens and to political elites. Focusing primarily on mass behavior, it presents this framework within a broader cognitive perspective of humans as limited-capacity information processors who have developed at least two quite distinct modes of processing, one preconscious, automatic, low effort, and extremely fast (System 1); the other conscious, volitional, high effect, and relatively slow (System 2). After a brief foray into rational choice theory, the chapter spends much more time with behavioral decision theory and its bounded rationality perspective on how people normally cope with their cognitive limits. The strengths and weaknesses of various methods for studying decision-making are reviewed. Four broad types of decision strategies are discussed: dispassionate, confirmatory, fast and frugal, and intuitive. The effects of integral and incidental emotions on decision-making are also reviewed. The chapter concludes by considering the effects of decision strategy on decision quality and learning.

Law and the Emotions

This paper discusses several concepts that can be used to provide a foundation for a unified, theory of rational, economic behavior. First, decision-making is defined to be a process that takes place with reference to both ‘subjective’ and ‘objective’ time, that distinguishes between plans and actions, between information and states and that explicitly incorporates the collection and processing of information. This conception of decision making is then related to several important aspects of ‘behavioral economics’, the dependence of values on experience, the use of behavioral rules, the occurrence of multiple goals and environmental feedback.

The contrast between self-interested behavior guided by rational choice and altruistic behavior guided by normative considerations is a central theme in the social sciences. This study suggests that market and market-like behavior, the context where self-interest is expected to dominate, is in fact often motivated by altruism. This argument is tested by examining a willingness to pay measure, a surrogate for the market that is finding substantial use in analyses of public policy. In particular, the ability of the Schwartz model of altruism to explain willingness to pay for recycled products is examined. Findings indicate that even as the Schwartz model has explained many purely altruistic behaviors, it also can explain self-reported willingness to pay. While economists often have noted the importance of rational choice in even the most intimate of human decisions, this study notes the importance of normative altruism in even the most calculated.

Inferring a person's goal from their behavior is an important problem in applications of AI (e.g. automated assistants, recommender systems). The workhorse model for this task is the rational actor model - this amounts to assuming that people have stable reward functions, discount the future exponentially, and construct optimal plans. Under the rational actor assumption techniques such as inverse reinforcement learning (IRL) can be used to infer a person's goals from their actions. A competing model is the dual-system model. Here decisions are the result of an interplay between a fast, automatic, heuristic-based system 1 and a slower, deliberate, calculating system 2. We generalize the dual system framework to the case of Markov decision problems and show how to compute optimal plans for dual-system agents. We show that dual-system agents exhibit behaviors that are incompatible with rational actor assumption. We show that naive applications of rational-actor IRL to the behavior of dual-system agents can generate wrong inference about the agents' goals and suggest interventions that actually reduce the agent's overall utility. Finally, we adapt a simple IRL algorithm to correctly infer the goals of dual system decision-makers. This allows us to make interventions that help, rather than hinder, the dual-system agent's ability to reach their true goals.

Modern approaches to assessing the effectiveness of investments are based on the theory of rational choice, and the same applies to investments in health. At the same time, a person’s real behavior differs from rational behavior. The purpose of the study is to propose scientifically based methodological approaches to taking into account the characteristics of health-saving behavior of workers to increase the effectiveness of measures to reduce health risks. The object of the study is the working population and the characteristics of its health-saving behavior as a factor in the economic efficiency of measures to reduce health risks. Based on Russian and foreign studies, the provisions on cognitive distortions that cause negative features of self-preserving and health-preserving behavior (including patterns of self-destructive behavior) are summarized. Approaches to identifying the characteristics of health-saving behavior of employees of an economic entity, as deviations from rational behavior, have been formed on the basis of cognitive distortions formulated in the scientific literature that are characteristic of making a person’s choice in matters of health. An algorithm is proposed for analyzing the characteristics of such behavior (as deviations from rational behavior) and taking into account their impact on assessing the economic effectiveness of preventive measures and developing measures to improve their effectiveness. Criteria for the effectiveness of measures to manage the effectiveness of preventive measures, developed taking into account the characteristics of the health-saving behavior of the organization's team of employees, are formulated (based on the calculation of the total effect and result per unit of invested funds, both in the organization of the event itself and in the implementation of measures to improve efficiency).

Decision Making in Recurrent Neuronal Circuits

In this chapter, we look at models and approaches to FPDM that proceed from rational actor assumptions. We examine the expected utility model of war and some game-theoretic models such as the Prisoner's Dilemma, Chicken Game, and the Tit-for-Tat strategy. THE RATIONAL ACTOR MODEL The rational actor model is a linchpin of FPDM. Paul MacDonald (2003, 551) contends that many see it “as the most plausible candidate for a universal theory of political and social behavior, whose simple and intuitively plausible assumptions hold the promise of unifying the diverse subfields of political science.” Whereas many scholars criticize the model, others strongly defend it. Before a model can be proposed based on its tenets or its underlying assumptions criticized, we must first understand it. A rational approach extensively used in foreign policy analysis today, expected utility theory (EUT) sprang from the work of von Neumann and Morgenstern in the 1940s. The approach has its roots in microeconomics. The decision maker is assumed to be able to rank preferences “according to the degree of satisfaction of achieving these goals and objectives” (Sage 1990, 233). The rational actor is also expected to be able to identify alternatives and their consequences and to select from these alternatives in an effort to maximize satisfaction. In this setting, the rational economic decision maker is expected to be able to access a set of objectives and goals.