Predictably (Boundedly) Rational: Examples of Seemingly Irrational Behavior Can Be Quantitatively Explained by Bounded Rationality

Authors

Laxman Bokati, The University of Texas at El PasoFollow
Olga Kosheleva, The University of Texas at El PasoFollow
Vladik Kreinovich, The University of Texas at El PasoFollow

Publication Date

2-2020

Comments

Technical Report: UTEP-CS-20-11

To appear in Asian Journal of Economics and Banking, 2020, Vol. 3, No. 3.

Abstract

Traditional economics is based on the simplifying assumption that people behave perfectly rationally, that before making any decision, a person thoroughly analyzes all possible situations. In reality, we often do not have enough time to thoroughly analyze all the available information, as a result of which we make decisions of bounded rationality -- bounded by our inability to perform a thorough analysis of the situation. So, to predict human behavior, it is desirable to study how people actually make decisions. The corresponding area of economics is known as behavioral economics. It is known that many examples of seemingly irrational behavior can be explained, on the qualitative level, by this idea of bounded rationality. In this paper, we show that in many case, this qualitative explanation can be expanded into a quantitative one, that enables us to explain the numerical characteristics of the corresponding behavior.