Anxiety and rationality: Allais paradox, procrastination, Keynesian expectations, and other anxiety-based deviations from rationality

This paper proposes that there is a set of behavioral deviations from standard rational choices that differs from the rest of the deviations. This set is characterized by anxiety-based choices that are truly non-rational, whereas the rest consists of deviations that are actually rational once we take into consideration the role of reference points. This paper registers that the behavioral sciences literature conflates anxiety-based deviations with anxiety-free deviations. This conflation is probably the outcome of this literature’s cognitivist framework, which ignores the upheavals of the self. Anxiety is rather a manifestation of the upheavals of the self, where the self is inflicted by conflicting passions, apprehensions, and everyday difficulties in making decisions. Such upheavals undermine the formation of coherent preferences, which is guaranteed by the completeness axiom. This paper identifies a few anxiety-based deviations: the Allais paradox, procrastination, addictions, Keynesian expectations, the hot hand fallacy, the gambler’s fallacy, leadership awe, the Ellsberg paradox, and deliberate ignorance. Nevertheless, this set of anxiety-based deviations leaves out a heap of anxiety-free deviations—such as succumbing to temptations, the demand for equity that informs the ultimatum game, heuristics that sometimes lead to biases, the endowment effect, etc. The contribution of this paper lies in proposing a criterion, namely, the role of reference points, that can help us delineate anxiety-based from anxiety-free deviations from rationality.