Table Of ContentOptimallyIrrational
For a long time, economists have assumed that we were cold, self-
centred, rational decision makers – so-called Homo economicus; the
lastfewdecadeshaveshatteredthisview.Theworldweliveinandthe
situations we face are of course rich and complex,revealing puzzling
aspectsofourbehaviour.OptimallyIrrationalarguesthatourimproved
understanding of human behaviour shows that apparent ‘biases’ are
goodsolutionstopracticalproblems–thatmanyofthe‘flaws’identi-
fiedbybehaviouraleconomicsareactuallyadaptivesolutions.
Pagedeliversanambitiousoverviewoftheliteratureinbehavioural
economicsand,throughtheexpositionoftheseflawsandtheirmeaning,
presentsasortofunifiedtheoryofbehaviouralism,cognitivepsychol-
ogy and evolutionary biology. He gathers theoretical and empirical
evidence about the causes of behavioural ‘biases’ and proposes a big
pictureofwhatthedisciplinemeansforeconomics.
lionel page is a professor of economics and the Director of
the Behavioural and Economic Science Cluster at the University of
Queensland.He has worked on a wide range of topics in behavioural
economics, such as risk preferences, social preferences and strategic
behaviour.
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Published online by Cambridge University Press
Optimally Irrational
The Good Reasons We Behave
the Way We Do
LIONEL PAGE
UniversityofQueensland
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doi:10.1017/9781009209175
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Contents
ListofFigures pagevii
ListofTables ix
Preface xi
parti settingthescene
1 TheHomoEconomicusModel 3
2 ThePsychologyofBiasesinHumanBehaviour 12
3 TheLogicofaScientificRevolutioninEconomics 17
4 EvolutionandtheLogicofOptimisation 24
partii individualdecisions
5 RulesofThumbandGutFeelings 41
6 ReferencePointsandAversiontoLosses 62
7 SensitivitytoProbability 87
8 TheRandomnessofChoices 101
9 Impatience 114
partiii socialinteractions
10 KindnessandReciprocity 129
11 EmotionsandCommitment 159
12 SocialIdentity 174
v
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vi Contents
13 ImpressionManagement 205
14 SelectionofDelusion 224
partiv epilogue
15 Rationality? 247
Bibliography 281
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Figures
P.1 Hypotheticalflowerswithpetalsprogressivelyadded
followingrotations pagexii
P.2 Flowerpatternsfordifferentrotationsclosetothegoldenratio xiii
4.1 “Kludged”flatfish.PhotofromTomNicholsonlicensedunderCC
BY-NC4.0. 30
5.1 BalldetectionbyrobotsintheRobocupcompetition.Reproduced
fromAsharetal.(2015). 48
5.2 Thegazeheuristic.ReproducedfromPoddiakov(2013). 49
5.3 Examplesofoverfittingandunderfitting. 52
6.1 A hypothetical value function. Reproduced from Kahneman and
Tversky(1979). 67
6.2 WhyanS-shapecanbeanoptimalsolutiontotheproblem
ofperception 75
6.3 Optimal value function. Reproduced from Rayo and Becker
(2007). 79
7.1 Theprobabilityweightingfunctionfromprospecttheory. 93
9.1 Exponential,hyperbolicdiscountingandquasi-hyperbolic
discountingfunctions.ReproducedfromBernsetal.(2007). 119
10.1 Prisoner’sdilemmagameasabriefcaseexchange.Image
byChrisJensenandGregRiestenberg 139
12.1 StagHuntGame.ImagebyChrisJensenandGregRiestenberg. 197
13.1 Higher-orderbeliefsinthesuitcasegame 218
13.2 HarryandSallynavigatinganambiguousromanticoverture 221
vii
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Tables
7.1 Allais’gamblesdecomposedtorevealthesubstitution
ofacommonelement page91
7.2 Aseriesofgamblestoinvestigateprospecttheory’spredictions 94
11.1 ThegameofchickeninRebelwithoutaCause 163
14.1 Costswhendecidingtoprotectoneselfornotfromadanger 227
ix
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