Predicting Irrationality

 

With this article I intend to decipher the decision making mechanism that exist in society with the limited knowledge at my disposal. The views presented in the paper may sound highly biased or even absurd but in most cases they are realistically possible.

Rationality

How many of us really see the hidden or rather the visible incentives, the trade-offs behind each decision made. Consider the case of academics, does anyone really when opening a book see the future that lies ahead of him, the degrees hanging on the wall, the keys to your favourite machine, a bank balance that makes her knees weak, very rarely but still you go ahead and read the book, again very rare is it a result of a dying thirst for knowledge, so what does really drives us into reading a dull collection of words which in the long run rarely survive and even if they do may not result in welfare gains.

Social Perception

What you do, what you wear, what you listen to, to a very large extend is a result of the environment you live in, it’s not the influence of the environment precisely, rather it’s a sacrifice that that you make to ensure your validity as a socio normal person, simply put it’s the human need to connect, it doesn’t matter who you connect to, you just need to hear someone else’s words. So you read, write, stay up late at nights, study hard, exercise, quit smoking, not because you feel the need to change but just for that stamp which fetches you some hollow company.

How much does your reputation really count in your decision making mechanism, does it really? Should it?

Game, Set, Match

Consider A, B, C, all unaware of each other’s character and intensions and no negotiations are possible.

C proposes to give Rs.100 to A, who then has to decide if he wishes to share the amount with B, if B accepts we move on, else the game ends.

Now rationally speaking B should accept any offer greater than zero, free lunches are always welcome, seems very simple.

Now let’s assume that A and B know each other and we are in social environment, again rationality says accept the money, but will B accept the offer?

Suppose A offers Rs.1, most of you will reject this offer saying it’s too less, questions that might arise are why is A giving me the money in the first place, what does he gain from it, if B knows that A is to gain Rs.99 then the questions of equality come into the picture and a deal will be struck at 50-50, again assuming B is not

substantially irrational or simply crazy and also given that A is rational, where by the deal will ensure higher payoff for B.

Now consider B is a flamboyant character, whose wallet is filled with chips of gold, in this case what offer from A shall be accepted by B?

Given that B even after being rich is somehow down to earth and rational, again the deal should be done at any offer greater than 0, but assume that D, an attractive woman walks in, what now? How does the presence of a woman change the incentives, now participating in a trade that’s worth 100 is not going to look

charming, rational but not charming, so B in most cases will reject any offer that A makes.

Now suppose E walks in and E happens to be Steven Levitt, now given B is a student of Economics he shall accept any offer greater than 0, why…you really want to be rational or atleast pretend to be one in this case.

Now suppose D and E are present at the same time, that creates a dilemma, now the choice that is to be made is who to please, an attractive woman or Steven Levitt, the answer depends on what kind of a person B really is, if B is rich, a student of Economics, rational and a career oriented person he shall accept any offer greater than 0, and if B is rich, not a student of economics and flamboyant by nature he shall try to charm D and not participate in the trade.

Now assume D is an attractive woman, a student of Economics and rational how do the incentives change now?

Now it does not matter what type of a person B is, but in most cases he will ignore Steven Levitt and strike a deal with A to ensure D sees his rationality and then strike a conversation.

Now suppose F, B’s landlord, whom he hasn’t paid rent, walks in, again B no matter what type of a person he is, shall accept any offer from A, and if A has information on F he shall ensure higher returns for himself forcing a deal on B.

Thus our decisions not only depend on who we are and what we need but on the type of people around us, the place where we make the decision, what we see at that point of time,… basically an unending list of factors which we somehow manage to not recognize and make a decision that we feel is independent.

By

Shekhar Ibhrampurkar

Email: [email protected]