Optimally Irrational: The Good Reasons We Behave the Way We Do

320 Pages·2022·1.351 MB·English

by  Lionel Page

OptimallyIrrational
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.
Published online by Cambridge University Press
Published online by Cambridge University Press
Optimally Irrational
The Good Reasons We Behave
the Way We Do
LIONEL PAGE
UniversityofQueensland
Published online by Cambridge University Press
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Informationonthistitle:www.cambridge.org/9781009209199
doi:10.1017/9781009209175
©LionelPage2023
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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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Published online by Cambridge University Press
Tables
7.1 Allais’gamblesdecomposedtorevealthesubstitution
ofacommonelement page91
7.2 Aseriesofgamblestoinvestigateprospecttheory’spredictions 94
11.1 ThegameofchickeninRebelwithoutaCause 163
14.1 Costswhendecidingtoprotectoneselfornotfromadanger 227
ix
Published online by Cambridge University Press
Published online by Cambridge University Press