IDEAS home Printed from https://ideas.repec.org/a/ags/nejare/28875.html
   My bibliography  Save this article

Rational Roots Of "Irrational" Behavior: New Theories Of Economic Decision-Making

Author

Listed:
  • Opaluch, James J.
  • Segerson, Kathleen

Abstract

The neoclassical paradigm has proven to be a rich approach for evaluating a variety of issues for individual and social decision-making. However, an increasing body of literature suggests that actual behavior systematically violates the neoclassical utility model. This paper reviews a number of alternative models for decision-making. Results from the literature show several examples of apparently "irrational" behavior that can be explained in terms of these alternative motivations. The paper also extends the received literature by examining in some detail the implications of one such model which is based on the psychological feeling of ambivalence. The paper demonstrates that ambivalence has the potential for explaining the appearance of intransitive choices, the use of rules of thumb in decision-making and the large discrepancies between stated willingness-to-pay and willingness-to-accept, all of which have been observed in various settings. There are potentially great rewards from innovative research that expands the neoclassical paradigm to incorporate additional motivational factors in decision-making.

Suggested Citation

  • Opaluch, James J. & Segerson, Kathleen, 1989. "Rational Roots Of "Irrational" Behavior: New Theories Of Economic Decision-Making," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 18(2), pages 1-15, October.
  • Handle: RePEc:ags:nejare:28875
    DOI: 10.22004/ag.econ.28875
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/28875/files/18020081.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.28875?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Machina, Mark J, 1987. "Choice under Uncertainty: Problems Solved and Unsolved," Journal of Economic Perspectives, American Economic Association, vol. 1(1), pages 121-154, Summer.
    2. Gregory, Robin, 1986. "Interpreting measures of economic loss: Evidence from contingent valuation and experimental studies," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 325-337, December.
    3. W. Michael Hanemann, 1984. "Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(3), pages 332-341.
    4. Schoemaker, Paul J H, 1982. "The Expected Utility Model: Its Variants, Purposes, Evidence and Limitations," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 529-563, June.
    5. Harry Markowitz, 1952. "The Utility of Wealth," Journal of Political Economy, University of Chicago Press, vol. 60, pages 151-151.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Christian A. Vossler & Robert G. Ethier & Gregory L. Poe & Michael P. Welsh, 2003. "Payment Certainty in Discrete Choice Contingent Valuation Responses: Results from a Field Validity Test," Southern Economic Journal, Southern Economic Association, vol. 69(4), pages 886-902, April.
    2. Swallow, Stephen K., 1996. "Economic Issues in Ecosystem Management: An Introduction and Overview," Agricultural and Resource Economics Review, Cambridge University Press, vol. 25(2), pages 83-100, October.
    3. Hayes, William M. & Lynne, Gary D., 2004. "Towards a centerpiece for ecological economics," Ecological Economics, Elsevier, vol. 49(3), pages 287-301, July.
    4. Chorus, Caspar G., 2015. "Models of moral decision making: Literature review and research agenda for discrete choice analysis," Journal of choice modelling, Elsevier, vol. 16(C), pages 69-85.
    5. Rosenberger, Randall S. & Peterson, George L. & Clarke, Andrea & Brown, Thomas C., 2003. "Measuring dispositions for lexicographic preferences of environmental goods: integrating economics, psychology and ethics," Ecological Economics, Elsevier, vol. 44(1), pages 63-76, February.
    6. Mandy Ryan & Fernando San Miguel, 2003. "Revisiting the axiom of completeness in health care," Health Economics, John Wiley & Sons, Ltd., vol. 12(4), pages 295-307, April.
    7. Kim, Seon-Ae & Gillespie, Jeffrey M. & Paudel, Krishna P., 2008. "Rotational grazing adoption in cattle production under a cost-share agreement: does uncertainty have a role in conservation technology adoption?," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(3), pages 1-18.
    8. Mooreland, Jay, II, 2011. "The Irrational Investor’s Risk Profile," Master's Theses and Plan B Papers 107787, University of Minnesota, Department of Applied Economics.
    9. Peter Groothuis & John Whitehead, 2002. "Does don't know mean no? Analysis of 'don't know' responses in dichotomous choice contingent valuation questions," Applied Economics, Taylor & Francis Journals, vol. 34(15), pages 1935-1940.
    10. Christian A. Vossler & Robert G. Ethier & Gregory L. Poe & Michael P. Welsh, 2003. "Payment Certainty in Discrete Choice Contingent Valuation Responses: Results from a Field Validity Test," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 886-902, April.
    11. Wei Pan & Yi-Shin Chen, 2018. "Network approach for decision making under risk—How do we choose among probabilistic options with the same expected value?," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-19, April.
    12. Jonathan Aldred, 2006. "Incommensurability and Monetary Valuation," Land Economics, University of Wisconsin Press, vol. 82(2), pages 141-161.
    13. M. Gagarina & T. Goroshnikova & М. Гагарина & Т. Горошникова, 2018. "Психологические факторы стратегий погашения множественных задолженностей // Psychological Factors of Multiple Debt Repayment Strategies," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 6(3), pages 57-64.
    14. Ana Bobinac, 2019. "Mitigating hypothetical bias in willingness to pay studies: post-estimation uncertainty and anchoring on irrelevant information," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 20(1), pages 75-82, February.
    15. Poe, Gregory L. & Vossler, Christian A., 2009. "Consequentiality and contingent values: an emerging paradigm," MPRA Paper 38864, University Library of Munich, Germany.
    16. Santos, Julie I. & Uchida, Emi & Anderson, Christopher M. & Swallow, Stephen K., 2013. "Sources of Hypothetical Bias in Public Goods Experiments: A Disaggregated Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150389, Agricultural and Applied Economics Association.
    17. Gelso, Brett R. & Peterson, Jeffrey M., 2005. "The influence of ethical attitudes on the demand for environmental recreation: incorporating lexicographic preferences," Ecological Economics, Elsevier, vol. 53(1), pages 35-45, April.
    18. Hanemann, W. Michael & Kanninen, Barbara, 1996. "The Statistical Analysis Of Discrete-Response Cv Data," CUDARE Working Papers 25022, University of California, Berkeley, Department of Agricultural and Resource Economics.
    19. Murphy, James J. & Stevens, Thomas H. & Weatherhead, Darryl, 2004. "Is Cheap Talk Effective At Eliminating Hypothetical Bias In A Provision," Working Paper Series 14510, University of Massachusetts, Amherst, Department of Resource Economics.
    20. Iovanna, Richard & Newbold, Stephen C., 2007. "Ecological sustainability in policy assessments: A wide-angle view and a close watch," Ecological Economics, Elsevier, vol. 63(4), pages 639-648, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    2. Walter Ötsch, 2007. "Kognitive Grundlagen menschlichen Verhaltens: Kognitionswissenschaften und neoklassische Standardtheorie," Economics working papers 2007-10, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Finkelshtain, Israel & Feinerman, Eli, 1997. "Framing the Allais paradox as a daily farm decision problem: tests and explanations," Agricultural Economics, Blackwell, vol. 15(3), pages 155-167, January.
    4. Rindone, Fabio & Greco, Salvatore & Di Gaetano, Luigi, 2013. "On prospects and games: an equilibrium analysis under prospect theory," MPRA Paper 52131, University Library of Munich, Germany.
    5. Ziv Bar-Shira, 1992. "Nonparametric Test of the Expected Utility Hypothesis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(3), pages 523-533.
    6. Bruno S. Frey & Matthias Benz, 2004. "From Imperialism to Inspiration: A Survey of Economics and Psychology," Chapters, in: John B. Davis & Alain Marciano & Jochen Runde (ed.), The Elgar Companion To Economics and Philosophy, chapter 4, Edward Elgar Publishing.
    7. Dorian Jullien, 2016. "Under Uncertainty, Over Time and Regarding Other People: Rationality in 3D," GREDEG Working Papers 2016-20, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    8. Peter Brooks & Simon Peters & Horst Zank, 2014. "Risk behavior for gain, loss, and mixed prospects," Theory and Decision, Springer, vol. 77(2), pages 153-182, August.
    9. Gong, Xiaodong & Zhu, Rong, 2019. "Cognitive abilities, non-cognitive skills, and gambling behaviors," Journal of Economic Behavior & Organization, Elsevier, vol. 165(C), pages 51-69.
    10. Horst Zank, 2010. "Consistent probability attitudes," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 44(2), pages 167-185, August.
    11. Laciana, Carlos E. & Oteiza-Aguirre, Nicolás, 2014. "An agent based multi-optional model for the diffusion of innovations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 254-265.
    12. Coelho, Philip R. P. & McClure, James E., 1998. "Social context and the utility of wealth: Addressing the Markowitz challenge," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 305-314, November.
    13. Magnus Johannesson & Bengt Jönsson & Göran Karlsson, 1996. "Outcome measurement in economic evaluation," Health Economics, John Wiley & Sons, Ltd., vol. 5(4), pages 279-296, July.
    14. William Harbaugh & Kate Krause & Lise Vesterlund, 2002. "Risk Attitudes of Children and Adults: Choices Over Small and Large Probability Gains and Losses," Experimental Economics, Springer;Economic Science Association, vol. 5(1), pages 53-84, June.
    15. Segerson, Kathleen, 1994. "Environmental Policy And Risk," 1994 Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses Risk, Technical Committee Meeting, March 24-26, 1994, Gulf Shores State Park, Alabama 271555, Regional Research Projects > S-232: Quantifying Long Run Agricultural Risks and Evaluating Farmer Responses to Risk.
    16. Matthew Rabin & Richard H. Thaler, 2001. "Anomalies: Risk Aversion," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 219-232, Winter.
    17. Nyman, John A. & Welte, John W. & Dowd, Bryan E., 2008. "Something for nothing: A model of gambling behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2492-2504, December.
    18. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    19. Levy, Haim & Levy, Moshe, 2002. "Experimental test of the prospect theory value function: A stochastic dominance approach," Organizational Behavior and Human Decision Processes, Elsevier, vol. 89(2), pages 1058-1081, November.
    20. Frey, Bruno S. & Gallus, Jana, 2014. "Aggregate effects of behavioral anomalies: A new research area," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 8, pages 1-15.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:nejare:28875. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nareaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/nareaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.