Individual decision-making is governed by the axioms of rational preferences
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While formal decision theory models individual choice around the axioms of rational preferences and expected utility, psychological and empirical research demonstrates that human decision-making frequently violates these axioms.
reflectively grounded by the axioms, but so too are the axioms reflectively grounded by the expected utility … these different ways of thinking about rational choice and rational action be understood in terms of decision … everyday decision- making (Kahneman and Tversky 1979; Tversky and Kahneman 1986). People’s preferences are
Research demonstrates that people violate the independence principle of expected utility theory, raising the question of whether expected utility theory is normative for medical decision making. The author provides three arguments that violations of the independence principle are less problematic than they might first appear. First, the independence principle follows from other more fundamental axioms whose appeal may be more readily apparent than that of the independence principle. Second, the axioms need not be descriptive to be normative, and they need not be attractive to all decision makers for expected utility theory to be useful for some. Finally, by providing a metaphor of decision analysis as a conversation between the actual decision maker and a model decision maker, the author argues that expected utility theory need not be purely normative for decision analysis to be useful. In short, violations of the in dependence principle do not necessarily represent direct violations of the axioms of expected utility theory; behavioral violations of the axioms of expected utility theory do not necessarily imply that decision analysis is not normative; and full normativeness is not necessary for decision analysis to generate valuable insights. Key words: ex pected utility theory; independence axiom; decision analysis; normativeness. (Med De cis Making 1996;16:399-403)
bounded rationality The idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select
This glossary of economics is a list of definitions containing terms and concepts used in economics, its sub-disciplines, and related fields.
bounded rationality
The idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal.
choice modelling
A method of modelling the decision process of an individual or segment via revealed or stated preferences.
cultural economics
The branch of economics that studies the relationship between culture and economic outcomes. Here, "culture" is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters to economic outcomes and what its relation is to institutions. As a growing field in behavioral economics, the role of culture in economic behavior is increasingly being demonstrated to cause significant differentials in decision-making and the management and valuation of assets.
expected utility hypothesis
A foundational assumption in mathematical economics concerning decision making under uncertainty. It postulates that rational agents maximize utility, meaning the subjective desirability of their actions, choosing between risky prospects by comparing expected utility values (i.e. the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities).
agent
An actor or, more specifically, a decision maker in a model of some aspect of the economy.
ambiguity aversion
Also called uncertainty aversion.
Any preference for known risks over unknown
Arrow's impossibility theorem
Also called the general possibility theorem or Arrow's paradox.
When voters have three or more distinct options, no ranked voting electoral system can convert the ranked preferences of individuals into a community-wide (complete and transitive) ranking while also meeting the specified set of criteria: unrestricted domain, non-dictatorship, Pareto efficiency, and independence of irrelevant alternatives.
behavioral economics
The branch of economics that studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.
bounded rationality
The idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal.
choice modelling
A method of modelling the decision process of an individual or segment via revealed or stated preferences.
cultural economics
The branch of economics that studies the relationship between culture and economic outcomes. Here, "culture" is defined by shared beliefs and preferences of respective groups. Programmatic issues include whether and how much culture matters to economic outcomes and what its relation is to institutions. As a growing field in behavioral economics, the role of culture in economic behavior is increasingly being demonstrated to cause significant differentials in decision-making and the management and valuation of assets.
dollar auction
A non-zero sum sequential game that illustrates a paradox brought about by traditional rational choice theory in which players are compelled to make an ultimately irrational decision based completely on a sequence of apparently rational choices made throughout the game.
Duggan–Schwartz theorem
A result about voting systems designed to choose a nonempty set of winners from the preferences of certain individuals, where each individual ranks all candidates in order of preference.
economic democracy
Also called a democratic economy.
A socioeconomic philosophy that proposes to shift ownership and decision-making power from corporate shareholders and corporate managers (such as a board of directors) to a larger group of public stakeholders that includes workers, consumers, suppliers, communities and the broader public.
economic system
Also called an economic order.
A system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept. All economic systems have three basic questions to ask: what to produce, how to produce it, and in what quantities and who receives the output of production.
expected utility hypothesis
A foundational assumption in mathematical economics concerning decision making under uncertainty. It postulates that rational agents maximize utility, meaning the subjective desirability of their actions, choosing between risky prospects by comparing expected utility values (i.e. the weighted sum of adding the respective utility values of payoffs multiplied by their probabilities).
Income tax
A tax levied on income, weather being on an individual or a business.
insurance co-pay
A fixed amount paid by an insured individual for a healthcare service.
microeconomics
A branch of economics that studies individual people and individual businesses. For people, microeconomics studies how they behave when faced with decisions about where to spend their money or how to invest their savings. For businesses, it studies how profit-maximising firms behave individually, as well as when competing against each other in markets.
rational choice
The idea of making choices by using logic and that people will choose the most beneficial of the options afforded.
transaction cost
A cost in making any economic trade when participating in a market.
The shape of incomplete preferences
Incomplete preferences provide the epistemic foundation for models of imprecise subjective probabilities and utilities that are used in robust Bayesian analysis and in theories of bounded rationality. This paper presents a simple axiomatization of incomplete preferences and characterizes the shape of their representing sets of probabilities and utilities. Deletion of the completeness assumption from the axiom system of Anscombe and Aumann yields preferences represented by a convex set of state-dependent expected utilities, of which at least one must be a probability/utility pair. A strengthening of the state-independence axiom is needed to obtain a representation purely in terms of a set of probability/utility pairs.
Published as: Annals of Statistics 2006, Vol. 34, No. 5, 2430-2448
DOI: 10.1214/009053606000000740
arXiv categories: math.ST stat.TH
rationality: to be rational is to satisfy the axioms, and one should be rational. By the central theorem … contains a number of articles on rational decision making, some of which explicitly formulate … distinguishes between decision making under risk and decision making under uncertainty. A
Behavioral Economics revolutionized mainstream neo-classical economics. A wide range of psychological, economic and sociological laboratory and field experiments proved human beings deviating from rational choices as standard neo-classical profit maximization axioms failed to explain how human actually behave. Human beings rather use heuristics in their day-to-day decision making. These mental short cuts enable to cope with a complex world yet also often leave individuals biased and falling astray to decision making failures. What followed was the powerful extension of these behavioral insights for public administration and public policy making. Behavioral economists proposed to nudge and wink citizens to make better choices for them and the community. Many different applications of rational coordination followed ranging from improved organ donations, health, wealth and time management, to name a few. Yet completely undescribed remains that the implicit hidden persuasion opens a gate to deception and is an unprecedented social class division means. Social media forces are captures as unfolding a class dividing nudgital society, in which the provider of social communication tools can reap surplus value from the information shared of social media users. The social media provider is outlined as capitalist-industrialist, who benefits from the information shared by social media users, or so-called consumer-workers, who share private information in their wish to interact with frien
A wide range of psychological, economic and sociological laboratory and field experiments proved human beings deviating from rational choices as standard neo-classical profit maximization axioms failed to explain how human actually behave. Human beings rather use heuristics in their day-to-day decision making. These mental short cuts enable to cope with a complex world yet also often leave individuals biased and falling astray to decision making failures. What followed was the powerful extension of these behavioral insights for public administration and public policy making. Behavioral economists proposed to nudge and wink citizens to make better choices for them and the community.
Many different applications of rational coordination followed ranging from improved organ donations, health, wealth and time management, to name a few. Yet completely undescribed remains that the implicit hidden persuasion opens a gate to deception and is an unprecedented social class division means. Social media forces are captures as unfolding a class dividing nudgital society, in which the provider of social communication tools can reap surplus value from the information shared of social media users.
But also nudging occurs as the big data compiled about the social media consumer-worker can be resold to marketers and technocrats to draw inferences about consumer choices, contemporary market trends or individual personality cues used for governance control, such as, for instance, border protection and tax compliance purposes. To draw attention to this implicit struggle within society is important for various reasons: Addressing the nudgital society allows to better understand the laws of motion of governance in the digital age, leading to the potentially unequal accumulation and concentration of power.
Technological improvement in the age of information has increased the possibilities to control the innocent social media users and reap the benefits of their existence in hidden persuasion. In the age of populism, nudging can be criticized to be used by the ruling class to exploit the governed populace. In modern democracies, the right to rule was recently plundered in democratic votes through misguiding information of alternative facts and fake news circulated on social media.
Human reasoning is traditionally modeled through rational-order frameworks that assume stability, separability, and coherence. Yet across judgment, valuation, perception, and social decision-making, empirical work consistently reveals patterned violations of these assumptions. These deviations intensify in real-world contexts shaped by institutional constraints, identity commitments, and collective narratives, where reasoning must navigate incompatible interpretive frames and interdependent evaluative pressures. Existing theories typically treat such phenomena as noise, bias, or bounded rationality, leaving no formal account of how rational-order rules interact with the variability inherent in social domains. This article proposes a structural framework that explains why these two regimes diverge and how their interaction produces systematic mismatches. Building on quantum probability theory, not as a physical metaphor but as a representational tool, it formalizes evaluative states that remain indeterminate until elicited, transform under contextual modulation, and become relationally coupled across agents and domains. Whereas, existing quantum-cognition models primarily address task-level effects such as conjunction errors or order dependence, this framework scales quantum principles to socially and institutionally embedded reasoning. The account identifies contradiction, interference, entanglement, and resolution as recurrent properties of real-world cognition and shows how quantum formalisms provide a coherent vocabulary for capturing these phenomena. To support cumulative progress, the article outlines a research agenda with empirically testable designs for distinguishing incompatible bases, assessing inseparability, modeling context-driven transformations, and integrating multi-level reasoning environments. This program positions quantum and classical approaches within a unified architecture and advances a broader science of reasoning.
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