Rational choice and economic behavior

The article is devoted to adapting a company’s economic behavior to the conditions of sustainable development. Its purpose is to systematize, generalize, and improve the theoretical and methodological foundations of forming a company’s economic behavior and to substantiate the directions of its adaptation by the concept of sustainable development. The article examines the essence and evolution of theoretical approaches to defining the nature of a company’s economic behavior, starting from classical economic theories and ending with modern concepts of sustainable development and digital transformation. The study thoroughly analyzes classical theories based on rational choice, institutional theory, which considers interactions with economic and social institutions, and behavioral economics, which considers the psychological aspects of decision-making. The research justifies the need for companies’ economic behavior to adapt to modern economic conditions, particularly implementing the sustainable development concept. Key directions for adjusting a company’s economic behavior are proposed, including implementing energy-efficient technologies, developing corporate social responsibility, forming strategic partnerships, and digitalizing business processes. Special attention is given to integrating environmental, social, and managerial aspects into companies’ behavioral models, which, according to the authors, is a prerequisite for their stable development in a globalized environment. The study identifies key challenges companies face in adapting their economic behavior to sustainable practices, including financial constraints, legislative instability, insufficient awareness among management personnel, and resistance to change. The study reveals that integrating sustainable development principles into corporate behavioral models enhances investment attractiveness, competitiveness, and long-term resilience. The research results have practical significance for shaping a company’s economic behavior, strategic management, developing sustainable development policies, and improving economic efficiency in conditions of instability. Keywords: economic behavior, company economic behavior, sustainable development, adaptation of economic behavior, risk.

As far as recent developments in economic theory are concerned, "Behavioral Economics" constitutes one of the most promising frontiers in the last ten years, as the Nobel Prize for Economics recently won by the social psychologist Daniel Kahneman and the prestigious John Bates Clark Medal granted to the young economist Matthew Rabin testify. It is then worth asking the following questions: what is, exactly, Behavioral Economics? What are the reasons behind its recent success? This survey aims at providing a first answer, both directly and indirectly, to such questions, by illustrating the main contributions developed within such ambitious research program. Behavioral Economics aims at increasing the explanatory and predictive power of economic analysis through an increase in the degree of realism of the assumptions at the basis of economic models, i.e. by means of a greater and greater integration between economics and psychology (but also between economics and social sciences such as, for example, cultural anthropology). While standard economics assumes that agents are driven by well-defined and stable preferences and act rationally, psychology reveals that it is often the case that such assumptions cannot be taken as an adequate and satisfactory description of human behavior. In this light, Behavioral Economics focuses on markets where some (if not all) economic agents involved make choices which appear to substantially deviate from traditional economic predictions. In this survey we focus on the following two fields of studies within Behavioral Economics: a first field deals with the main cognitive limitations affecting economic behavior (Sections 2 and 3), whereas a second one is related to the role of the so called "social preferences" (Section 4). Both areas aim at incorporating the major results obtained both experimentally and empirically into formal economic analysis. Within the first area, it is assumed, analogously to neoclassical models, that agents act according to the self-interest hypothesis, but also that "rational" behavior is affected by several cognitive limitations (in line with classical contributions on bounded rationality; see, in particular, Simon 1978; 1979; 1992). By contrast, the second area departs from the neoclassical approach by introducing modifications at motivational level. Unlike traditional analyses, social preferences studies focus, at both theoretical and experimental level, on interaction scenarios where players act not on classic selfish preferences but on different types of social preferences. In other words, it is still assumed that individual behavior is rational, but also that various forms of non-selfish rationality get into the picture. In particular, behavioral choices by individual agents (as well as their objective functions) can be (either positively or negatively) affected by "other players'" preferences, intentions, material outcomes and/or behaviors.

Decision Making in Recurrent Neuronal Circuits

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

In their commentary on our recent study 1, Tucker & Vuchinich 2 argue that the core feature of behavioral economics (BE) is the analysis of temporally protracted molar patterns of choice behavior. We appreciate this view, and agree that BE has been highly effective in characterizing patterns of substance use behavior over time. However, we contend that BE is also well-suited for examining behavior at a finer level of resolution, investigating moment-to-moment influences that contribute to decisions regarding substance use and related behaviors. To use Tucker & Vuchinich's 2 example, John may not be drinking alcohol right now, but his decision to do so (or not) stems from a dynamic interplay between stable individual difference factors (e.g. personality traits, attitudes) and situation-specific, within-person influences (e.g. craving, negative affect) that serve as immediate precursors of behavior. These proximal influences are viewed increasingly as critical contributors to substance misuse 3, 4. In our view, the argument that momentary dynamic changes, whether in cognitive states or BE indices, can be 'safely ignored' 2 runs counter to current research in addiction science and psychological science more broadly 5. Ignoring such within-person variation closes the door on a potentially fruitful direction for BE 6, 7. Considerable evidence suggests that the BE indices of demand and delay discounting exhibit meaningful change in response to relevant manipulations. Delay discounting rates, for instance, change in response to drug deprivation, environmental cues and acute drug administration (for a review, see 7). The level of alcohol demand is enhanced dynamically by many of the same manipulations 8, 9. Furthermore, demand is also sensitive to pharmacological interventions 10 and contextual factors such as next-day responsibilities 11. Although this is still a nascent research area, these promising findings are consistent with an efficient cause interpretation. This may help to clarify situational factors that impact choice behavior in addiction and, in turn, provide a point of entry for in-the-moment interventions 12 and the development of personalized medicine applications 13. Tucker & Vuchinich 2 noted that only the molar approach to BE has proved useful in extensions to drinking in the natural environment. Whether this holds for laboratory manipulations of demand remains an empirical question. Recent research has laid the necessary groundwork for examining how changes in BE indices translate into drinking behavior, including linking changes in demand with actual consumption in the laboratory 14-16. Our study was designed to provide proof of concept for testing whether within-person changes in demand predict drinking in the laboratory and the natural environment, as has been demonstrated for within-person variation in craving 17, 18. We agree with Tucker & Vuchinich that both efficient and final cause interpretations of BE indices are legitimate 2, as they have also discussed elsewhere (e.g. 19). Ultimately, it is worth emphasizing that BE was developed from integrating methods across disciplines, and addiction science relies increasingly upon integration across multiple domains and levels of analyses. We would argue against an interpretation of BE that impedes its incorporation into a broader range of addiction research. None. Funding for this work was provided by National Institute on Alcohol Abuse and Alcoholism Grants R01 AA 019546 to D.M.McC. and T32 AA 013526 to K.J.S.

SummaryWe propose that words can be an object of systematic study in the field of economics and outline an approach to the study of word choice in behavioral economics. We consider words as strategic instruments of influence and review how they can impact behaviors in several subtle and distinctive ways, namely through their capacity to elicit affect, support identity and social belonging, evoke linguistic associations, and generate bias arising from variations in fluency. We provide a variety of examples to illustrate the behavioral impacts of words through these mechanisms and provide practical recommendations regarding how words can be harnessed by policymakers to reach socially desirable goals through a consideration of how word‐related behavioral anomalies shape incentives.

Marine Natsvaladze
 Ivane Javakhishvili Tbilisi State University
 Georgia
 https://orcid.org/0000-0002-7635-8565
 
 The Covid-19 pandemic has led to unprecedented changes in people's social and economic behavior, They had to struggle to maintain their health and earn a living at the same time. Behavioral economics has been found to be highly relevant in explaining the behavior of economic agents during the Covid-19 pandemic, under the "new normal" conditions to explain real human economic behavior [9].
 Behavioral economics is an important paradigm in modern economics, and it has revolutionized the standards of economic theory and instead of rational decisions, it offers more realistic alternatives for decision-making and management - any decision should be based not on rational and mathematical calculations, but on the study of human behavior patterns, the analysis of causes and the awareness of whether how people think and how we can influence their choices by changing the content or environment during the decision-making process, without restricting the choices (Using "Nudge Theory" of behavioral economics).
 The Covid-19 pandemic has raised several questions about how market participants are responding to the global pandemic. The Covid-19 pandemic was able to spread rapidly around the world, indicating that extreme measures were needed to bring it under control. The policies of governments around the world have had a significant negative impact on the economy. Taking into account these factors, the issue of studying the economic behavior of market participants in the conditions of the pandemic was put on the agenda.
 Making real economic decisions based on rationality seems to be extremely difficult for all economic agents under the conditions of the Covid-19 pandemic. Therefore, when economic agents are faced with the extremely difficult situation created by the pandemic, rational economic decisions are likely to become ineffective or inefficient, and therefore the principle of "bounded rationality" described in the field of behavioral economics may become ineffective in the implementation of strategies to mitigate the consequences of the pandemic [15].
 The article discusses the use of the "Nudge Theory" in the public and private sector to implement incentives in economic decision-making.
 
 The purpose of the study: To consider a new economic policy using the approaches of behavioural economics and give recommendations on its development and implementation in the public and private sectors. Studying scientific experiments and articles by leading scientists, adapting the main conclusions, analysing the implications for policy implementation.
 
 Methodology/approach: Analysis of field data and review of laboratory experiments based on a bibliographic review of behavioral economics.
 
 Scientific news: Author's assessments or recommendations.
 
 Practical value: For new courses and disciplines.
 
 Keywords: Behavioral Economics, Economic Policy, "Nudge Theory", Incentives, Economic decision-making.

By combining ideas from sociology and psychology, behavioural economics has progressively questioned conventional economic presumptions of rationality in recent decades. In light of this, it is now crucial to comprehend the effects of social influences such in-group bias and conformity in order to explain market dynamics and group decision-making. This paper explores the critical roles of conformity effect and in-group bias in behavioral economics, emphasizing their influence on consumer choices, investment decisions, and trust dynamics. Drawing from experimental and empirical evidence, the study highlights how conformity shapes herd behavior in financial markets and consumer preferences, while in-group bias fosters trust within groups but risks exclusion of outsiders. Findings suggest that conformity may provide efficiency in stable environments but reduces adaptability under changing conditions. Similarly, in-group bias enhances cooperation within groups yet undermines broader economic fairness. Together, these biases demonstrate how social psychology significantly interacts with economic behavior, offering insights for designing inclusive policies and preventing market inefficiencies.

The emerging discipline of behavioural economics has established that humans do not follow the canonical rules of rational utility maximization that were the foundation of neoclassical economics. If people were rational economic agents, their behaviour would be highly predictable. No unifying predictive framework for actual economic behaviour has emerged to replace the canonical assumption of utility maximization. I suggest here that evolutionary biology can play a role in forging a new theoretical framework for behavioural economics. I argue that some apparently irrational economic behaviours can be understood as products of the hunter–gatherer ecology in which humans evolved. I discuss three examples of anomalous behaviour: hyperbolic time discounting, context‐dependent preferences and contribution to public goods. In each case, ‘irrational’ decisions are less surprizing when we recognize the evolutionary roots of the behaviour. Cultural effects remain relevant in an evolutionary account of economic behaviour. Indeed, an evolutionary perspective may help us anticipate economic behaviour and create sustainable societies in the novel, globalized economy that we have created. Copyright © 2010 John Wiley & Sons, Ltd.

Tourists display bounded rationality when they rely on heuristics to simplify complex decisions or make decisions not based purely on self-interest. Behavioural economics, which moves beyond the widely criticised assumptions that traditional economics makes regarding rational economic behaviour, provides useful theoretical foundations and approaches to tourism and hospitality studies. This paper reviews and discusses studies that evaluate bounded rational behaviour in the tourism and hospitality industry and examine influencing psychological factors. A review framework of economic behaviour is proposed to identify new perspectives and approaches to evaluating tourists’ complex decision-making processes. The paper also considers the prospects for applying behavioural economics theories to tourism and hospitality. It is suggested that limited attention and projection bias should be further examined in future research. The application of anchoring, mental accounting, nudge theory and neuroeconomics to tourism studies is also recommended.

Purpose In a market of great uncertainty and volatility, shipowners are confronted with critical decisions that largely determine the profitability and viability of their businesses. This article aims to explore whether the decision to purchase a secondhand bulk carrier is rational, using a dataset of both conventional and eco Capesize secondhand prices, along with one-year time charter rates from January 1995 to October 2024. Design/methodology/approach The methodology is based on fundamental and technical analysis approaches, such as Net Present Value and Moving Average, to determine the optimal timing for making a purchase decision. Findings The results reveal a significant discrepancy between expected (rational) and actual decisions for both conventional and eco ships, offering evidence for the rejection of the semi-strong form of the Efficient Market Hypothesis in the dry bulk market. Interestingly, the financial benefits traditionally attributed to eco vessels were not found to affect investment decisions. Originality/value The findings provide empirical support for the assumption, held in behavioral economics, that ship investment decisions may deviate from rational patterns. In light of these findings, the study suggests that a realistic understanding of ship investments should extend beyond the rational explanation of market agents’ economic behavior and investigate the role of cognitive biases in shaping such decisions.

Human activity has led to a steady degradation of the environment over the past decades, pushing the ecosystem to the brink of collapse. It is now clear that a dramatic change in behavior is needed to avoid system collapse. Economics has been striving to devise approaches to bring about this change. While the application of rational choice models saw the solution primarily in incentivization, the effectiveness of this was cast into doubt by findings from early behavioral economics. The realization that heuristics affect human thinking and acting led to the extension of the economic policy repertoire by including nudges. While hard rules, incentives, and nudges can change human behavior in specific situations, recent findings suggest that they are not sufficient to bring about the necessary change. Current behavioral economics research sheds light on the role of the mechanisms underlying human behavior. Factors scrutinized are categories, identities, narratives, worldviews, and values, which can be united under the collective term mental models. Through these mental models it is possible to explain not only linear decision processes as is conventional, but also dynamic ones. These dynamic processes consider factors that have been highlighted as important in other behavioral sciences, such as habits and positive spillovers. In this chapter, we present a conceptual framework that describes the analysis of human behavior including mental models. The framework combines insights from behavioral economics with those from other behavioral sciences to explore far-reaching changes in human behavior and thus provide a scientific basis for the necessary transformation.

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.

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.

In this paper, we have tried to explain the normative turn in more recent work on experimental economics and behavioral economics. In section two, we discussed the various arguments that philosophers have offered in related to a normative interpretation of rational choice theory. We used the Friedman-Savage work on Expected Utility Theory as an example of the differences between the way that economists and philosophers see rational choice theory. We concluded that economists have traditionally equated the normative with ethically. In the third part, we examined the results of experimental and behaviorial economic literature with emphasis on the influence of experimental psychology. We presented a number of empirical anomalies and we agreed that representatives of economic psychology tend to view rational choice theory as a normative theory of rationality. In the last part, we examined some of the causes and consequences of the normative turn.