Do humans make good decisions?

The problem of economic choice and its rationality has now become the subject of research in social sciences. An economic choice is considered rational if it results in the person satisfying their needs to the maximum extent by making certain expenses. Limited resources force a person to use financial resources sparingly to satisfy as many needs as possible. The classical economic approach assumes that, when making economic choices, one is not influenced by others, since one’s needs and preferences are generally stable. Currently, there are three main trends in economic theory: neoclassical, institutional, and evolutionary, which are based on the principles of absolute or limited rationality of economic behavior. In this article, by the term “rational economic choice” we mean the choice that best meets a person’s expectations in which case the expected utility function takes on the maximum value. The rationality of economic choice in the article is considered in the context of anomie psychological processes. Currently, more and more attention is being diverted towards the characteristics of the socio-economic development of modern society. Many authors agree that modern societies are mainly characterized by the uncertainty of the conditions of socio-economic development and the anomie of people’s socio-economic behavior. This trend is manifested in the increasing influence of a person’s psychological characteristics on their economic decisions. The consumer often makes the choice under conditions of uncertainty, so the choice may be made not in favor of the best, but in favor of any of the profitable options. Տնտեսական ընտրության և դրա ռացիոնալության խնդիրն այժմ դարձել է հասարակական գիտությունների հետազոտության առարկա։ Տնտեսական ընտրությունը համարվում է ռացիոնալ, եթե այն հանգեցնում է նրան, որ անձը առավելագույնս բավարարում է իր կարիքները՝ կատարելով որոշակի ծախսեր։ Սահմանափակ ռեսուրսները ստիպում են մարդուն խնայողաբար օգտագործել ֆինանսական ռեսուրսները՝ հնարավորինս շատ կարիքներ բավարարելու համար։ Դասական տնտեսագիտական մոտեցման համաձայն, տնտեսական ընտրություն կատարելիս անձը չի ենթարկվում այլոց ազդեցությանը, քանի որ նրա կարիքներն ու նախասիրությունները հիմնականում կայուն են: Ներկայումս դիտարկվում է տնտեսագիտական տեսության զարգացման երեք հիմնական ուղղություն՝ նեոկլասիկական, ինստիտուցիոնալ և էվոլյուցիոն, որոնք հիմնված են տնտեսական վարքագծի բացարձակ կամ սահմանափակ ռացիոնալության սկզբունքների վրա։ Այս հոդվածում «ռացիոնալ տնտեսական ընտրություն» եզրույթվ մենք հասկանում ենք ընտրություն, որը լավագույնս համապատասխանում է անձի ակնկալիքներին, որի դեպքում ակնկալվող օգտակարության գործառույթը ստանում է առավելագույն արժեքը: Հոդվածում տնտեսական ընտրության ռացիոնալությունը դիտարկվում է անոմիայի հոգեբանական գործընթացների համատեքստում: Ներկայումս ավելի ու ավելի մեծ ուշադրություն է դարձվում ժամանակակից հասարակության սոցիալտնտեսական զարգացման առանձնահատկություններին։ Մի շարք հեղինակների կարծիքով ժամանակակից հասարակությունները հիմնականում բնութագրվում են սոցիալ-տնտեսական զարգացման պայմանների անորոշությամբ և մարդկանց սոցիալ-տնտեսական վարքագծի անոմիկ դրսևորումներով: Այս միտում արտահայտվում է տնտեսական որոշումների վրա անձի հոգեբանական բնութագրերի աճող ազդեցությամբ: Սպառողը հաճախ ընտրություն է կատարում անորոշության պայմաններում, ուստի ընտրությունը կարող է կատարվել ոչ թե լավագույնի, այլ շահավետ տարբերակներից որևէ մեկի օգտին։ Проблема экономического выбора и его рациональности в настоящее время стала предметом исследования социальных наук. Экономический выбор считается рациональным, если он приводит к тому, что человек в максимальной степени удовлетворяет свои потребности за счет совершения определенных затрат. Ограниченность ресурсов вынуждает человека экономно использовать финансовыер есурсы, чтобы удовлетворить как можно больше потребностей. Классический экономический подход предполагает, что при принятии экономического выбора человек не находится под влиянием других, поскольку его потребности и предпочтения в целом стабильны. В настоящее время в экономической теории выделяются три сновных направления: неоклассическое, институциональное и эволюционное, в основе которых лежат принципы абсолютной или ограниченной рациональности экономического поведения. В данной статье под термином «рациональный экономический выбор» мы подразумеваем выбор, который наилучшим образом соответствует ожиданиям человека, и в этом случае ожидаемая функция полезностип ринимает максимальное значение. Рациональность экономического выбора в статье рассматривается в контексте аномии психологических процессов. В настоящее время все больше внимания уделяется особенностям социально-экономического развития современного общества. Многие авторы сходятся во мнении, что современные общества в основном характеризуются неопределенностью условий социально-экономического развития и аномичностью социально-экономического поведения людей. Эта тенденция проявляется в возрастающем влиянии психологических особенностей человека на его экономические решения. Потребитель часто делает выбор в условиях неопределенности, поэтому выбор может быть сделан не в пользу лучшего, а в пользу любого из выгодных вариантов.

* Emotions are largely absent in economic models. Possibly for this reason, many theories fail to explain the actual decisions made by managers. * Therefore, we integrate emotions with regular microeconomic theory. We focus on FDI decisions, and include both economic and emotional variables in our analysis of the firm's decision-making process. * In our theoretical analysis, emotions are included in a utility maximization model that considers not only the utility of the firm but also the utility of the individual decision-maker. * In our empirical analysis, the presence of emotions in FDI decision-making is tested using a sample of Dutch enterprises that considered an investment in Central or Eastern Europe between 1990 and 2000. Key Results * The empirical results show that emotions are important in economic decisionmaking. The presence of positive emotions increases the chance of Dutch firms to engage in an FDI in Central and Eastern Europe. Introduction Unlike Dr Spock cruising the Galaxy in his Voyager, most humans are not stripped of their emotions when making decisions. But equally most humans do not possess Dr. Spock's information processing capacities when making choices (Earl 2001). This is nevertheless how economic analysis models human decisions. Standard rational choice models and the bulk of empirical studies on microeconomic choice behavior use a rational choice model wherein little room is left for emotions to play a role, let alone a decisive one. The skills required to select and to handle the information that is needed to guarantee the rationality of the choice, are assumed to be abundantly available among human decision-makers. This assumption is not different in the study of foreign direct investment (FDI-) decisions. The complicated processes leading to a decision either to invest or not and where to invest (geographically) are notoriously difficult to model and the last thing that we need is more complication in terms of emotions playing a role. Direct investment-decisions are assumed to be based on estimates of the Net Present Values of all investment options and the final decision on whether or not to proceed with the investment in a particular country is assumed to be based on the ranking of all options (including the negative ones of not to invest) in terms of their estimated Net Present Value. When preparing a survey on investment-decisions of Dutch firms in Central and Eastern Europe and Central Asia. In open interviews with investors we explored the many reasons that might have played a role during open interviews with investors. During these discussions, approximately half of the respondents implied that "emotional" elements played a role in making final choices both regarding the decision to invest and the final choice of the country. Considerations such as the fact that the manager had participated in an exchange program during his/her study in that specific country, the fact that the partner of (one of) the owner(s) holds citizenship of the host country or that a personal acquaintance asked the Dutch firm to take over the foreign business, were among the important factors quoted to have been decisive elements in the decision process. These considerations seem far away from the algorithms of pure rational choice, but the question is whether they are. In this paper we explore theoretically how emotions can be seen as complements to rational choice processes and illustrate empirically that emotional factors do play a role in foreign direct investment-decisions. The second section includes a description of the economic decision-making literature including emotions and a frame that can be used to include emotions in investment-decisions. In section three a simple utility maximizing decision-making model will be described, with the specifications on how to include emotions. Section four provides empirical evidence that emotions are an influencing factor in the FDI-decision-making process, using the data from a survey among Dutch enterprises considering a foreign direct investment in Central and Eastern Europe. …

Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach

Neural representations of social valence bias economic interpersonal choices

Classical value-based decision theories state that economic choices are solely based on the value of available options. Experimental evidence suggests, however, that individuals' choices are biased towards default options, prompted by the framing of decisions. Although the effects of default options created by exogenous framing-such as how choice options are displayed-are well-documented, little is known about the potential effects and properties of endogenous framing, that is, originating from an individual's internal state. In this study, we investigated the existence and properties of endogenous default options in a task involving choices between risky lotteries. By manipulating and examining the effects of three experimental features-time pressure, time spent on task and relative choice proportion towards a specific option-, we reveal and dissociate two features of endogenous default options which bias individuals' choices: a natural tendency to prefer certain types of options (natural default), and the tendency to implicitly learn a default option from past choices (learned default). Additional analyses suggest that while the natural default may bias the standard choice process towards an option category, the learned default effects may be attributable to a second independent choice process. Overall, these investigations provide a first experimental evidence of how individuals build and apply diverse endogenous default options in economic decision-making and how this biases their choices.

This paper discusses the development of a neuroeconomic model of decision-making (DM). The method used was a review of functional Magnetic Resonance Imaging of game trials on economic choice. Key centers in economic DM are Ventromedial Prefrontal Cortex, Dorsolateral Prefrontal Cortex, Frontopolar Cortex, Orbitofrontal Cortex, Anterior Cingulate Cortex, Amygdala and Ventral Tegmentum. The interaction of these centers determines individual risk-preference (NeM). The validity of NeM is consolidated by lesion-studies. NeM shows that relaxation exercises are complementary to physical fitness in the maintenance of mental health. Further, NeM explains the effect of “Early home-supported discharge” and how chess games support the learning of mathematics.

The social value orientation (SVO) has a profound effect on the strategic decision making in economic choices and the ability to succeed in coordination games. With that in mind, in this study we wanted to examine an electrophysiological measure elicited in different resource allocation problems that affect the preferences of the player. We recorded EEG from participants while they were engaged in different allocation problems varying in the magnitude of reward and the difference size between alternative choices. We found that the theta to alpha ratio (TAR) can differentiate between individualistic and prosocial players. Specifically, individualistic players were more sensitive to the magnitude of the overall payoff (reflected by the radius size) as well as to the difference between two reward alternatives in the resource allocation task. These two variables, reward magnitude, and the difference between payoff alternatives, have significantly differentiated between the TAR levels of prosocials and proselfs (p < 0.001). For extreme differences (small or large), TAR was higher in comparison to medium sized differences. Our results demonstrated that in resource allocation games the TAR can be predicted based on the parameters of the task and the SVO category of the player (prosocial or individualistic). Specifically, an interaction was found between the attractiveness of the reward (radius) as well as the conflict between alternatives (Δ∅) and the SVO of the player at a significance level of p < 0.0001. These results highlight the importance of the SVO construct in economic decision choices varying in both reward magnitude and the proximity between alternative choices. Suggestions for future studies are discussed.

Decision Making in Recurrent Neuronal Circuits

There is considerable evidence that human economic decision-making deviates from the predictions of expected utility theory (EUT) and that human performance conforms to EUT in many perceptual and motor decision tasks. It is possible that these results reflect a real difference in decision-making in the 2 domains but it is also possible that the observed discrepancy simply reflects typical differences in experimental design. We developed a motor task that is mathematically equivalent to choosing between lotteries and used it to compare how the same subject chose between classical economic lotteries and the same lotteries presented in equivalent motor form. In experiment 1, we found that subjects are more risk seeking in deciding between motor lotteries. In experiment 2, we used cumulative prospect theory to model choice and separately estimated the probability weighting functions and the value functions for each subject carrying out each task. We found no patterned differences in how subjects represented outcome value in the motor and the classical tasks. However, the probability weighting functions for motor and classical tasks were markedly and significantly different. Those for the classical task showed a typical tendency to overweight small probabilities and underweight large probabilities, and those for the motor task showed the opposite pattern of probability distortion. This outcome also accounts for the increased risk-seeking observed in the motor tasks of experiment 1. We conclude that the same subject distorts probability, but not value, differently in making identical decisions in motor and classical form.

Taking into account the relevant literature, it is argued in this review that important advances can be made in the application of decision sciences to economics if greater attention is given to the presence of diversity in the types of economic decisionmaking and behaviour. This is of particular significance for understanding market dynamics. This requires both rational and irrational types of decision-making to be taken into account. A limitation of neoclassical and much mainstream economic theory in its lack of consideration of this diversity and its economic consequences. Different types of rational and irrational choices are specified in this article. Even rational decision-making and behaviour can be quite diverse. Empirical evidence is provided of diversity in economic decision processes and the consequences of this diversity is noted. Most attention is paid to the influence on the dynamics and stability of market systems of the diversity of the beliefs and behaviour of market participants. It is shown how a preponderance of sticky decision-making or restrained reactions in markets can improve the dynamics of their adjustment when market equilibrium alters or a market is disturbed but its equilibrium remains unchanged. It is observed that these reactions can be socially beneficial. Several different restrained forms of decision-making and behaviour are identified which make for stickiness in market behaviour and decision-processes.

No AccessPolicy Research Working Papers21 Jun 2013The Transition from Communism: A Diagrammatic Exposition of Obstacles to the Demand for the Rule of LawAuthors/Editors: Karla Hoff, Joseph E. StiglitzKarla Hoff, Joseph E. Stiglitzhttps://doi.org/10.1596/1813-9450-3352SectionsAboutPDF (0.1 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract:In an earlier paper, Hoff and Stiglitz presented a mathematical exposition of a theory that demonstrated that mass privatization without institutions to limit asset-stripping may not lead to a demand for the rule of law ["After the Big Bang? Obstacles to the Emergence of the Rule of Law in Post-Communist Societies," American Economic Review 94(3), June 2004, pages 753–63]. This report makes the same argument in terms of simple diagrams. The central idea is that economic actions (to build value or strip assets) and political positions of individuals are interdependent. "Big bang" privatization may give individuals an interest in taking what they can quickly, rather than waiting for the establishment of property rights protection that would permit them to build more valuable assets. Asset stripping gives some of these individuals an interest in prolonging the absence of the rule of law so that they can enjoy the fruits of stripping without the constraint of government enforcement of property rights. Each individual, in attempting to influence society's choice of the environment, focuses on the impact on himself, not the impact on others. In choosing their economic actions, individuals ignore the effect of their economic decisions on how they themselves vote, how other people believe the system will evolve, and thus how others invest and vote. Thus, two distortions of individual behavior are associated with the public good nature of votes. The authors use this framework to make one further point. Because of the interdependence between individuals' economic and political choices, demand for and opposition to the rule of law cannot be separated from macroeconomic policy. A too stringent macroeconomic policy can lower the returns to building value relative to stripping assets and thereby weaken the equilibrium demand for the rule of law. Macroeconomic policies and institutional evolution are not independent issues. This paper—a product of Investment Climate, Development Research Group—is part of a larger effort in the group to understand how good governance emerges. Previous bookNext book FiguresReferencesRecommendedDetailsCited ByInstitutional Reform in Kazakhstan16 September 2020Russia's Legal Transitions: Marxist Theory, Neoclassical Economics and the Rule of LawHague Journal on the Rule of Law, Vol.7, No.210 September 2015Asset stripping and firm survival in mass privatization: Testing the Hoff-Stiglitz and Campos-Giovannoni models in MontenegroJournal of Comparative Economics, Vol.43, No.2Russia's Legal Transitions: Marxist Theory, Neoclassical Economics and the Rule of LawSSRN Electronic JournalRule of Law Economics: The Cost of Guarantors Services and Enforcement ErrorsVoprosy Ekonomiki, No.320 March 2011 View Published: June 2004 Copyright & Permissions Related RegionsEurope and Central AsiaRelated CountriesRussian FederationRelated TopicsSocial Protections and LaborLaw and DevelopmentMacroeconomics and Economic GrowthGenderFinance and Financial Sector Development KeywordsASSETSBANKCIVIL SOCIETYCOLLAPSECOMMERCIAL LAWDEMOCRACYGOVERNANCEGOVERNMENTJUDICIARYJUSTICELAW ENFORCEMENTLAWSLOBBYINGPOLICIESPOLICYPOLITICAL INTERESTSPRIVATIZATIONRULE OF LAWSTRATEGIESSTRATEGY PDF DownloadLoading ...

BACKGROUND: Ischemic hypoxia induced by suprathreshold G-force loading can adversely affect vision, cognition, and lead to loss of consciousness (LOC). The purpose of this study was to determine whether reductions in cerebral oxygenation, caused by subthreshold G-forces (up to 4 Gz and of limited durations that do not lead to LOC), would affect visual perception and working memory performance.METHODS: Sixteen subjects performed visual perception and working memory tasks both before and during Gz exposures (1, 2.2, 3, 4 with leg pressurization, 4 with leg and abdomen pressurization) within a human-use centrifuge.RESULTS: As measured using near-infrared spectroscopy, blood oxygenation over medial prefrontal cortex was similar in the 1 and 2.2 Gz conditions, but was reduced to a similar extent in the 3 and 4 Gz conditions. In parallel, visual perception accuracy was reduced in the 3 and 4 Gz conditions, with no difference between the 3 and 4 Gz conditions. No change in reaction time was seen. Conversely, neither accuracy nor reaction time changes were observed for the visual working memory task.DISCUSSION: These results indicate that although visual working memory is not affected, the ability to visually discriminate between stimuli is reduced at G-forces as low as 3 and 4 Gz. This may have important ramifications for pilots who are routinely subjected to such forces.Croft RJ, Klegrd R, Tribukait A, Taylor NAS, Eiken O. Effects of acceleration-induced reductions in retinal and cerebral oxygenation on human performance. Aerosp Med Hum Perform. 2021; 92(2):7582.

The life management of French Nuclear Power Plants is an important issue and a major stake considering the aging management assessment of the key components of the plant, both from an economic and a technical point of view. The actual life evaluation is: • The first 3-loop PWR plants have 25 years in operation, • The first 4-loop PWR plants have 19 years in operation. To optimize the best and strategic choice in order to achieve the best possible performance and to prepare the technical and economical choice and decision considering: • the mode of degradation for different components, • the industrial capacity and capability to replace or to repair components, • the life evaluation of components with time limit in operation, the French utility has organized the life management of Nuclear Plant in function of several program of knowledge on degradation mode from the large and long term experience feedback and the maintenance program for life management based on normal and periodic maintenance actions and exceptional maintenance carried out on strategic components. This paper shows the table of degradation mode and different actions engaged by utility on: • In-Service Inspection, periodic maintenance, • Alternative maintenance actions, • Exceptional program of maintenance based on several mitigation and strategic replacement of components. This paper provides the reader with an overview of how advanced information processing techniques to the improvement of in-service inspections, condition-based maintenance, and asset management.

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.

In this chapter, we argue that many aspects of human perception are best explained by adopting a modeling approach in which experimental subjects are assumed to possess a full generative probabilistic model of the task they are faced with, and that they use this model to make inferences about their environment and act optimally given the information available to them. We apply this generative modeling framework in two diverse settings—concurrent sensory andmotor adaptation, andmultisensory oddity detection—and show, in both cases, that the data are best described by a full generative modeling approach. Bayesian ideal-observer modeling is an elegant and successful normative approach to understanding human perception. One particular domain in which it has seen much success recently is that of understanding multisensory integration in human perception (see Chapter 1). Existing applications of this modeling approach have frequently focused on a simple special case where the ideal observer’s estimate of an unknown quantity in the environment is a reliability-weighted mean of the individual observed cues. This is all that is needed to understand a wide variety of interesting perceptual phenomena. We argue, however, that the Bayesian-observer approach can be more powerfully and generally applied by clear generative modeling of the perceptual task for each experiment. In other words, this assumes that people have access to a full generativemodel of their observations and that they use this model to make optimal decisions in performing the task. This systematic approach effectively provides a “model for modeling” that has some key advantages: (1) It provides the modeler with a clear framework for modeling new tasks beyond simply applying common normative models— such as linear combination—which may not apply for a new scenario and may fail to explain important aspects of human behavior; (2) Human performance can be measured against these clear “optimal”models such thatwe candraw conclusions about optimality of human perception or reveal architectural limitations of the human perceptual system, which cause it to deviate from optimality. For a particular perceptual task, the optimal solution requires inference in the true generative model of the task. Here, optimal is defined in the sense that the posterior probability over relevant unknowns in the environment is calculated. Any actions or decisions to bemade can then be taken