Rationality

Rationality is a characteristic of belief, action, and decision. It is generally described as having the following aspects:

• Reasoned justification. When one's beliefs, actions, or decisions are rational, one should be justified in his or her reasons or goals.
• Conformity. When one has a goal or a problem to be solved, one's rational beliefs, actions, or decisions should conform to the goal or the solution.
• Consistency. When one derives rational beliefs, actions, or decisions from a goal or a problem to be solved, those beliefs, actions, and decisions should be consistent across cases, situations, or contexts.
• Optimality. When one has a rational belief, takes a rational action, or makes a rational decision, the belief, action, or decision is optimal for the goal or solution among other possible alternatives.

The term rationality is used differently or in more specific ways in different fields of social science. The fields of psychology and behavioral economics have studied the relationship between deception and rationality.

Homo economicus. Psychological studies that focus on judgment and decision making have treated the concept of rationality from two points of view: the normative microeconomics model and the descriptive model of human behavior.

In the normative microeconomics model, rationality refers to the characteristics of behavior in Homo economicus, or economic man. This concept maintains that human beings are rational and narrowly self-interested actors who egocentrically pursue material desires. These characteristics are based on the following principles of Homo economicus's behavior: He pursues only self-interest; he always seeks optimal behavior that maximizes self-centered, material gains; and his decisions, which are based on the maximization of selfish material gain, are consistent across contexts.

These principles imply that Homo economicus has a means to evaluate utility for behavioral options. Utility for Homo economicus is based only on the context-free, ordinal, and measurable materialistic aspects of material gains and losses. The principles also imply that Homo economicus is capable of immediate and precise calculations of the utility in any situation. However, the principles of Homo economicus (that is, the normative microeconomics model) are not always compatible with actual human behavior. Psychologists' studies of human behavior in judgment and decision making have found many cases in which people violate the following principles:

Reversal of preference. When Homo economicus chooses an option, the option is optimal at any time. But people often reverse their preference, such as preferring to get $100 immediately rather than $200 one year later. However, people always prefer to receive $200 over $100 if they can get either amount immediately.

Mental accounting. When Homo economicus calculates outcomes of choice, the total gain or cost is constant. In practice, however, people mentally frame assets such as current income, current wealth, or future income. This implies that in human behavior, the accounts are not fungible, and the marginal propensity to consume out of each account is different.

Refusal in ultimatum game. In an ultimatum game, two players divide an amount of money between them. One player has the right to decide how to divide the sum, but another player can turn down the proposal if he or she doesn't like the offer. In case of refusal, the pay-off to both players is zero. If the second player is Homo economicus, he should accept the first player's offer [Page 798]as long as it is not zero, because the offer is better than zero payment in case of refusal. In experiments, however, people tend to turn down the first player's offer when they feel it is unfair, that is, they are willing to accept zero payment.

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