The Rational And Self Interested Agent Used As A Model Of Human Behaviour

In the book Freakonomics, written by economist Steven D. Levitt and journalist Stephen J. Dubne, the authors go through different parts of modern life to show how economics describes why people act a certain way as well as the way specific outcomes occur. They look into different aspects of society and view them with different perspectives. With the use of specific data and the fundamentals of economics, the very obscure comparisons and the different chapters in the book show correlation between economics and human nature. The main point of this book is to explain a few fundamental ideas through the answers of strange questions and how they play a major role in society.

The Prisoner’s Dilemma is an extremely popular game and way of thinking about social interactions and also economics. It judges how people work together and against each other. It helps us understand what governs the balance between cooperation and competition in business, in politics, and in social settings. The two players in the game can choose between two moves, either 'cooperate' or 'defect'. The idea is that each player gains when both cooperate, but if only one of them cooperates, the other one, who defects, will gain more. If both defect, both lose. The whole game situation and its different outcomes can be summarised with the example provided below, hypothetical situations are imagined with the example below

Kahneman’s article is an analysis of intuitive thinking and how it guides our decision-making. Although primarily aimed at the field of psychology, it is an interdisciplinary article with applications in economic theorising. Kahneman attempts to differentiate between two systems of thought, one of intuition (system 1) and one of reasoning (system 2), and argues that many judgements and choices are made intuitively, rather than with reason (a slower and more deliberate process). Intuitive decision making, which encompasses heuristics, although generally more efficient and rapid, makes the agent potentially subject to errors due to framing effects or violations of dominance. The analysis of the studies and theoretical situations also provides criticism of the commonly held model of the rational agent within economics. The article also further conceptualises Kahneman’s theory, the Prospect Theory (Kahneman & Tversky, 1979), which has descriptive applications of people’s choice in decision-making situations involving risk and known probability of outcomes. These situations are typically unexplained by the more normative rational agent model.

GEBMO or the General Behavior Model was developed by Ludwig Brenner as a way to predict hazards before they happened. Brenner devised a system of scenarios that could occur with multiple factors for each element. The system is basically designed on a cause effect relationship. One thing happens because of another which leads to a result (Haight, 2012). This model was used to develop an emergency action plan for a small community surrounding a gas station.

The first principle in individual decision-making is facing a trade-off. In order for individuals to accomplish their goals or to obtain something they desire, there is usually something that must be given up or traded to accomplish that. In Chapter 1 Principles of Economics, efficiency vs. equity is discussed which helps further explain this principle. Society is always desiring to

Economists have often modelled human decision makers as completely rational. According to this model, rational people know their own preferences, gather and accurately process all relevant information, and then make rational choices that advance their own interests. However, Herbert Simon won a Nobel Prize in economics by pointing out that people are rational, but only boundedly so in that they seldom gather all available information, they often do not accurately process the information

“Psychopathy is a personality disorder characterized by an inability to form human attachment, aggressive narcissism, and antisocial behavior defined by a constellation of affective, interpersonal and behavioral characteristics, most of which society views as pejorative” [1]. Some of these characteristics include irresponsibility, grandiosity, cunning, deceitfulness, selective impulsivity, sexual promiscuity, lack of empathy, etc. People who are psychopathic display not only antisocial behavior but also emotional impairment such as the lack of guilt. They are able to prey on others using their charm, deceit, violence or any other methods that allow them to get what they want. A strong feature of most of the behavior

In Shaun Nichols’ chapter, “How Psychopaths Threaten Moral Rationalism: Is it Irrational to be Amoral?” Nichols attacks two views, which he refers to as the Conceptual Rationalist and the Empirical Rationalist. He argues that while a Kantian approach to moral

In today’s society, sociopaths frequently play a big role in the business/political world. Sociopaths are people with personality disorders, who are usually charming, and have poor judgment (M. E. Thomas). Sociopaths usually are not able to tell right from wrong (LoveToKnow Corp). The film Window Of Opportunity, written and directed by Samuel Joseph, had a great example of what a sociopath would be like. The character Roger Sizemore in this film is a sociopath who believes he is the greatest due to the amount of money he has. This paper will describe the film and why the character Roger has sociopathic behaviors, and compare him to Bernie Madoff and Fred Goodwin.

Sympathy and self-interest, when examined superficially, seem like conflicting notions. For this reason, Adam Smith is often criticized for writing two philosophical books – one about the human nature to exhibit sympathy, and one about the market’s reliance on our self-interest – that contradict each other. Through careful examination of Smith’s explanations, however, these two apparently separate forces that drive human behavior become not only interwoven, but symbiotic.

He argued that every human being has unique preferences which greatly influence them when making choices (Breen and Rottman 1995). People are mostly motivated by money and are likely to carry out a cost-benefit analysis before settling on a decision. It is based on the following premises: human behavior is based on rational calculations, human beings act with rationality when making choices and these choices are aimed at maximizing gains or pleasure. In a similar manner, Interactionist Theory (IT) is used to study social interactions among people. It does not study the entire population at once, but rather studies smaller social groups. It focuses on how individuals act and how they make behavioral choices depending on the way they interpret situations (Hindess, 1998, p.42). From another perspective, it states that human beings only react to social stimuli. As such, they are social actors, and must adjust their behaviors in consideration to the behaviors of other human

According to both Thaler and Sunsteins most human beings do not make decisions that are characterized in the elementary economics textbooks. However, the decisions should be along rich suggestions that enable people to come up with better choices for both ourselves and the society. Various people are likely to be surprised after learning that conditions and the setting in which individuals make the decisions normally tend to influence the choices that are made. This tendency is also likely to affect the decisions that have more significant consequences. This may include for instance how much a family saves and how they also invest, the kind of mortgage they are

Prospect theory is an important alternative descriptive theory for decision-making under unreliable situation (Kahneman and Tversky 1979), which includes real life selection and psychological analysis between choices that involve risk. Prospect theory, which efforts to explain individual make decisions between risky replacements based on the value of potential gains and losses (Wakker 2010), advanced from expected utility theory, which explains that investors want to maximize expected utility of wealth when unclearly situations (Blavatskyy 2007). According to Kahneman and Tversky (1992), more recent researches perceived nonlinear preferences in choices that do not involve definite events in prospective theory. The concept of framing effect refers description invariances (Kahneman and Tversky 1992). To be specific, individual always makes the same decision in identical choice conditions. Also, decision makers have tendency to

Over the summer, my boyfriend, Rob, and I had to make a considerably important decision. After going from seeing each other on campus on a daily basis to simply being hundreds of miles away from each other, Rob and I both admitted that we had begun to miss each other. We had been going back and forth during June and July on whether he should fly up and visit me in Rhode Island in August or just wait another month to see me once we were both back on campus for the fall semester. If he came and visited, I would not only be able to see him, but I would also be able to introduce him to my family.

My independent research in the field started with my curious interest in the processes of how decisions made by individuals and governments, what are the main factors encouraged them to choose particular decision over other options and the outcomes of those decisions. Then, I started to read theories of great Economists, such as, Keynes, Freidman , Devenport, Kinnerly and Mason who wrote on decision-making and the ability of individual to interpret the information. Additionally, there were theories by De Bondt , Clark , Tversky and Kehnman who argued that human psychology is interconnected with economics which cannot be ignored. Learning those theories and comparing them with the real life happenings, my enthusiasm to get deeper insights of economics increased. Encouraged by this, I have compiled