Rationality: Are we Homer or are we Spock? by mscuttle | Feb 5, 2018 | Class Material and Discussions, Featured, Unit 1 | 28 comments Dan Ariely – Predictably Irrational Discussion Question: Is it reasonable for economists to assume people are rational? 28 Comments Kiki Lu on February 5, 2018 at 9:53 am No. It is unhelpful to model decision-making agents, whether in small or large numbers, while deliberately assuming that those agents behave according to patterns that are known to not actually represent their behaviour. There seems to be no clear reason to use such a deliberately inaccurate model except to appease human arrogance. Reply Kevin Du on February 5, 2018 at 10:01 am If no one is perfectly rational, you cannot assume people are rational. Reply Jaclyn Woon on February 5, 2018 at 10:03 am I believe it is reasonable for economists to assume people are rational because it is extremely difficult to predict irrational human behaviour and we have not studied that to a high degree yet. Therefore, as of now it is necessary to assume humans are rational in order to study standard economics and economical theories. Reply Ellen Chen on February 5, 2018 at 3:47 pm It is not reasonable for economists to assume that people are rational because human beings will never only use logical thinking to makes decisions. We will always use at least a little bit of emotion and this will cause models that are based on rational decisions will be inaccurate. Reply Zona Savic on February 5, 2018 at 5:31 pm Economists shouldn’t assume that people are rational, because people are often driven by emotion, not logic. Emotions can cloud judgement and influence decisions based on nothing more than mood or beliefs irrelevant to the decision. For example, a person may buy a product or service simply because they’re in a good mood, or may be impulsive and spend money before thinking it through. This impulsiveness, driven by the pleasure centre in the brain only craves instant gratification and is rarely ruled by logic or reasoning, though humans often struggle with it because it can lead to bad decisions (especially financial ones). People are also easily swayed, as Dan Ariely described. He realised that when two differently priced products are placed with one similar to the higher priced one (at the same price as the more expensive option) but inferior in value, people are much more likely to select the higher priced, high-quality product than if only the original two were possible choices. Although the 2 scenarios weren’t very different (no one would choose the expensive, inferior product, leaving the original 2 options), people made different decisions, proving that human judgement can be flawed, easy to influence, impulsive, and ultimately irrational. Reply Gina So on February 5, 2018 at 8:49 pm Yes, it is reasonable. It is difficult to model and predict irrational behavior and decisions made by people, and easy to do so for rational behaviour – it gives a good sense of what to expect. However, irrational behaviour should be taken into consideration. Reply Max Sossin on February 5, 2018 at 8:58 pm I believe it is reasonable in some cases to assume humans are rational. For example in physics for some problems, you assume everything happens in a vacuum which greatly simplifies things. However, in the real world nothing actually happens in a vacuum. The same thing is true for economics, to simplify problems it is useful to assume humans are rational but in the real world that is certainly not the case. So when solving economic problems in the real world instead of the classroom, assuming rationality can be a grave mistake. Reply Ethan Gottesman-Kaplun on February 5, 2018 at 9:06 pm I think that people are a mix of Spock and Homer, in that they may sometimes appear rational and sometimes irrational. A fairly accurate assumption can be made that the more complex a problem is, the less rational one will act. This is because we tend to avoid making decisions that are difficult. Dan Ariely’s TED Talk provided quite a few examples of this phenomenon. One such example is when a sample group is asked to choose between a vacation to Rome and vacation to Paris – two very different but desirable options. When there was an additional option of the vacation to Rome without certain expenses paid for, the original Rome option appeared much more desirable because of its juxtaposition against the undesirable option. This shows us that economists can rely on some level of human rationality in their models, but they must be cautious of assuming it in all cases. Reply Jaewon on February 5, 2018 at 9:17 pm No, I do not think that it’s reasonable for economists to assume people are rational, since I, myself am irrational more than I am rational. Humans are blinded by many things, and we tend to get distracted, follow others very easily, and get easily tempted. If I was given 3 bars of chocolate, instead of saving a chocolate bar for the next 3 days, I would give into temptation, and finish all 3 in one day. Many things that should be done rationally, are done irrationally in this world. Reply Mehak Shah on February 5, 2018 at 9:34 pm To claim that people are rational, we must assume that people make rational choices: they weigh all the options against a well-defined set of preferences to choose the one which is the most valuable to them. But truly, people are not rational because human beings often allow ourselves to be affected by our emotions, other people, and be swayed by the context of the decision needed to be made. As we watched in the two videos above, the presence of an inferior option or a default option can trick us into making irrational or undesirable decisions, and if we were rational, then there would be no chance for this to occur. There may be many irrational options, but only one rational choice, so if all humans were rational, we would only really have one choice for every decision. But this is not the case, and thus, I think that people cannot make the rational choice in every situation, meaning that people are irrational. Reply Jennifer Huynh on February 5, 2018 at 9:52 pm It is reasonable for economists to assume that the majority of people are rational. To be rational means that when individuals make decisions they will examine all their options with set criteria and choose the option which is the most valuable or makes them the happiest. A rational decision is based solely on facts without significant emotions and can be explained logically; which a majority of people do. However, economists must also consider that not everyone thinks alike or has the same perspective. As a result, economists must also understand that what may seem like an irrational decision/behaviour could possibly be rational if accompanied by a logical explanation. Similarly to Dan Ariely’s explanation with the nurses. In conclusion, to assume if people are rational depends on the context, amount of the facts provided and what the person values thus influencing the person’s decision making. Reply Maria Esipova on February 5, 2018 at 9:54 pm I believe it is reasonable for economists to assume people are rational, similar to how other scientists, such as chemists, physicists, and mathematicians make certain assumptions in their work in order to come to a conclusion that best suits the situation. Reply Hendry on February 5, 2018 at 10:01 pm I do not believe that it is reasonable for economists to assume that all people are rational. As individuals, a person’s behaviour can be subject to many different types of responses depending on a situation. From the video above, we can see that even small changes that should not affect the outcome of a decision end up altering some decision making processes. It is an oversimplification to say that people will always be governed by the same reasons no matter what, because people will naturally be influenced by their own emotions and outside circumstances. Reply Jason on February 5, 2018 at 10:28 pm Given that human decisions are fluid and unpredictable, and can often be swayed by the surrounding environment (e.g. advertisements that target emotions), it is not reasonable for economists to make this assumption. Reply Alex Chen on February 5, 2018 at 10:33 pm It is illogical for economists to assume that people are always rational. Humans are flawed, easily influenced, and oftentimes follow the path of least effort. One simply needs to look at studies into mob mentality and techniques of compliance to realize that we are not as mentally acute as we would like to imagine. While people can be rational in a vacuum, they are not in real life, coloured as it is by thoughts, emotions, and biases. There is, however, a certain degree of rationality that one may assume about an individual—they follow general principles and rules that may be observed through behavioural patterns. I believe we are closer to Homer, despite our best attempts to be Spock. Reply Sandra Malinouskaya on February 5, 2018 at 11:07 pm No, I don’t think that it’s reasonable. Each person’s rationality tends to be subjective and puts the person first before anything else. This may make it seem to the rest of the world that the person is irrational because their reasoning is different. Furthermore, as Dan Ariely pointed out, our reasoning can be easily manipulated by certain strategies so the end result would be people acting irrationally, since reason has been manipulated. Reply Ganesh on February 6, 2018 at 12:39 am I think it is reasonable for economists to assume that people are rational to a certain extent, especially when looking at a situation theoretically. However, these economists should also not dismiss the fact that people don’t always make rational choices, as often their judgement and decision making can be influenced by their emotions. I think that assuming people are always rational might not help with solving some real-world economic issues. Reply Tiffany Tran on February 6, 2018 at 1:15 am I believe that it is reasonable for economists of assume people are rational for the purposes of their research, data collection, and analysis. Even though the videos we watched show us that people are sometimes driven by their emotions and can become irrational (e.g. the nurses that ripped off the bandages quickly in an attempt to shorten the time their patients were in pain and people who chose a certain option because an undesirable option was given), I think there is still a bit of rationality behind their thinking. I feel that it is much easier for economists to assume that people are rational than irrational as there would be an infinite number of cases for them to analyze. However, if economists could find an easy way to account for the fact that people are occasionally irrational, their research may be more accurate. Reply Mandy Wai on February 6, 2018 at 1:28 am Yes, it is reasonable for economists to assume people are rational. A rational behavior is seen when a person makes choices that are the most beneficial for themselves. As Dan Ariely explained in his TED Talk using the subscriptions packages from The Economist, it was noted that given three options, people selected the most expensive print and online package. This is because a consumer would compare the price of the print and online package to the print only subscription which was priced at the same cost. A consumer would then logically decide that paying for the print and online package is the most beneficial for them at that cost. However, it’s important to acknowledge how the print only package was strategically placed there to confuse consumers what is really more beneficial. Considering how the online-only subscription become more popular once the print only subscription was removed, it reveals that majority consumers are targeted for the lack of understanding of their real preferences. Consumers can be misguided when manipulative tricks are used to make them believe they are acting rationally for possible unnecessary products. Reply Yiwald on February 6, 2018 at 1:42 am It is not a good idea for economists to solely assume that humans will always act rationally, as such thinking supposes that everyone is equally smart(not to say that smart people don’t make mistakes), or trained to analyse and address problems logically. The reality is that many will behave based on instinct and emotion when faced with uncertainties. Especially when put in the context of the economy, where short term changes are hard to predict and timing matters, many opportunities for complex decision making emerge. Sure, it is possible to forecast how things will play out long term, but most will pay closer attention to what is happening in the instant. As the Ted talk video suggests, the more potential solutions there are, the less likely a person is to respond rationally. Furthermore other forces can influence the decisions that are made. Since there are more options to choose from, suddenly the answer doesn’t seem so straightforward anymore. people may indeed try to act in pursuit of their own financial benefit, but they may not always make the right choice that takes them towards this goal. This doesn’t mean that we cast the blanket that all humans will be irrational, because that makes the same mistake as the original assumption. Rather it should be acknowledged that neither can truly be satisfied, and assumptions will only take you so far in the long run. Reply Vicky Chang on February 6, 2018 at 2:15 am I believe that it is unreasonable for economists to make this assumption. To say that people always make rational decisions that remain unclouded by emotion is an unrealistic interpretation of human behaviour. Instead, by interacting with society on some level, people succumb to societal pressures and tend towards the same trends the majority of their social circle are currently raving about, regardless of how little use or desire they may have previously had for such a trend. This is inherently irrational behaviour we see consistently. Furthermore, as mentioned by Dan Ariely, humans are inherently irrational by making mistakes and being confused or vindictive. People are characterised by irrational behaviour as a result of varying personalities, desires, and emotions that are reflected in how we ultimately make economical decisions. Therefore, I believe the more reasonable assumption would be that people are irrational. Reply Mahnpreet Virdi on February 6, 2018 at 2:26 am I do not believe it is reasonable for economists to believe that people are rational. When someone is rational they act without emotion. This is something that I feel like is near impossible for humans. Reply Kimberly Cruz on February 6, 2018 at 2:45 am I think that it is unreasonable for economists to assume people are rational as to think purely on the basis of logic and our minds is inhuman. As the Behavioural economist Dan Ariely presented, we make decisions under the influence of several factors and options, though we do not realize this at the immediate moment, i.e., when presented with an intermediate choice, we will be directed to the desired answer. Throughout the TED Talk, my striking thought was that our innate bias guides our rationale; who we are (to ourselves AND to the perception of others) and how we feel contributes immensely to our decisions. I really liked that Dan highlighted ” to understand our cognitive limitations would design a better world.” It is not to say that we will be more rational, but rather, more innovative even if we may be irrational. Reply Benjamin Ma on February 6, 2018 at 4:36 am Yes, I believe that economists are reasonable in assuming that people act rationally. Although humans are susceptible to emotional and psychological manipulation, I think that economists can assume that most individuals will conform to a general “set” of outcomes (outcomes varying based on situation). Because these outcomes are expected of an individual, they can be considered “normal”, or “rational”, and thus can be used in economic models. Reply Denesh on February 6, 2018 at 5:23 am Economists cannot assume that people are rational if they want to create models that can be applied to real life, since we’ve seen that people do not behave rationally, often unconsciously. However, it’s impossible to predict irrational behavior to factor it into a model. The only solution is to use a rational model to help discover irrational behavior and investigate the causes of it. Then, you can iterate on your previous model with the new information, and you should progressively get a more accurate model. Reply Michael on February 6, 2018 at 8:31 am Although all humans are able to be rational and make rational decisions, economists would probably find more success assuming we are irrational. This is because most people end up having their feelings influence a lot of the decisions they make, thus they may end up making choices that may seem like the best option in the moment but actually aren’t when revisited at a later date. More research should be done to see how much this affects our decision making and how we can avoid it in the future. Reply Andrew on February 6, 2018 at 8:47 am I think human beings are not rational when making important financial decisions, but in economic studies, its reasonable for people to believe that everyone in the study/activity are behaving rationally,for the sake of economic theories to be made. Reply Sherry on February 6, 2018 at 10:26 am No, I don’t think it is reasonable to make that assumption. I think people are often irrational and can be easily influenced by their emotions. This type of behavior was also shown in the TED talk. Reply Submit a Comment Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of new posts by email.