Rational irrationality: A two stage decision making model
Date
2021Author
Acevedo, Rafael A.
Aponte, Elvis
Harmath, Pedro
Mora, Jose U.
Metadata
Show full item recordAbstract
This paper proposes a mathematical two-stage decision making model based on dual-decision
models from behavioral economics that includes, in addition to cognitive and affective systems,
an individualistic human factor and a stochastic shock. The model provides a new vision of the
decision-making process and the impact of individualism. In the first stage, the agent´s initial
willingness to choose is obtained following traditional economic theory but including an
individual human factor, which is composed by the learning process, free will, and other human
factors. This allows us to explain the reason why sometimes people are inclined to choose
options that seem to be irrational decisions from the view of traditional economics logic. In the
second stage, the model explains how the cognitive and affective systems and the influence of
a stochastic shock affect the initial willingness to choose, obtained in the first stage. The shock
might be produced by those negative and/or positive feelings and information not known or
considered previously that allows the individual arrive to the final decision. Finally, our model
demonstrates that the individual human factor and the stochastic shock are fundamental
elements that define the rational irrationality when traditional economic theory fails to explain
individuals' choices.