02 The Great Rationality Debate

Rationality

Thinking and deciding in ways that help achieve goals and form accurate beliefs

Instrumental vs. epistemic rationality

Instrumental rationality means choosing actions that best achieve your goals given your preferences; epistemic rationality means holding beliefs that accurately reflect reality

Great Rationality Debate

Debate about whether humans are rational or irrational

Paradox of rationality

Humans can achieve remarkable things but also make serious mistakes; even intelligent people can hold false beliefs and act against their long-term goals

Rational actor model

Model assuming people make optimal decisions based on stable preferences

Expected utility theory vs. game theory

Expected utility theory models decisions under uncertainty; game theory models interdependent decisions where outcomes depend on multiple actors

Rational actor assumptions

People have stable preferences

Heuristics and biases approach

Perspective arguing that people deviate from rational choice theory; heuristics are mental shortcuts

Framing effect

Decisions change depending on how a problem is presented

Ariely et al. (2006)

Willingness to attend a poetry reading differed depending on whether people were asked to pay or be paid

Prospect theory

Theory proposing that people evaluate gains and losses relative to a reference point rather than considering only final outcomes

Naturalistic decision-making

Approach studying real-world decisions and how experience-based intuition can produce good judgments

Expert intuition

Fast judgment based on learned patterns and experience that can produce good decisions under suitable conditions

Kind vs. wicked environments

Kind environments have valid cues

Kahneman and Klein (2009)

Intuition is reliable when people have experience with predictable patterns and sufficient feedback to learn them

Evolution by natural selection

Process in which inherited traits that improve survival or reproductive success become more common through variation

Adaptation

Inherited trait shaped by natural selection that helped solve a recurring survival or reproductive problem

Evolutionary mismatch

Situation in which an adaptation no longer fits the current environment

By-products and noise

By-products arise as consequences of adaptations without being selected for their own function; noise is random variation not necessarily shaped by selection

Evolutionary perspective on rationality

Evolution selects for reproductive success rather than necessarily accurate beliefs

Epistemic irrationality and instrumental rationality

A belief can be inaccurate yet sometimes promote actions that improve survival or reproductive success

Bounded rationality

Herbert Simon's perspective that decisions are constrained by cognitive abilities

Cognitive constraints

Limits on mental processing that prevent people from evaluating every possible option and consequence

Satisficing

Choosing an option that meets an acceptable threshold instead of searching for the optimal option

Ecological rationality

Extent to which a decision strategy fits the structure of the environment in which it is used

Fast-and-frugal heuristics

Simple decision strategies that use limited information and little computation to make decisions efficiently

Recognition heuristic

Using recognition of one option but not another to infer which has a higher value on a relevant criterion

Bounded vs. ecological rationality

Bounded rationality concerns cognitive and time constraints; ecological rationality concerns how well decision strategies fit the environment

Evolutionary outcomes

Evolution produces adaptations

Key conclusion of the Great Rationality Debate

People can be irrational but can also make good decisions through reasoning or intuition; decision quality depends partly on cognitive constraints and environmental conditions