A Different Perspective on Rationality: Rational Econs or Rational Humans?

S. Anjum, B.A. Mallik and I. Huq

Background and Objective: Do people always behave as expected in the study of economics? There is considerable variation in behaviour, preferences and choices among people/economic agents. Perhaps more importantly, this variation is visible under different circumstances for the same person. This paper shows how people’s preferences differ when the same options are presented in different ways. Materials and Methods: Analyzing three different studies based on concepts of heuristics, discounted pricing and sunk cost fallacy, this paper shows that people’s choices deviate from the strict axioms or assumptions of rationality. The experiments chosen are adopted from different experiments conducted by influential behavioural economists. However, all experiments have been adapted to fit the socio-cultural norms of urban Bangladesh. Results: The first study concludes that individuals tend to make irrational decisions by considering how much an event represents a particular cluster where they overlook the base rates. The second and third studies show that when it comes to making choices about future purchases, individuals behave in a more rational way comparing to when they are they are faced with a challenge of sunk cost. Conclusion: It was concluded from the study, that when applied to reality, the assumptions of rationality as understood in the economic theories may hold under certain circumstances but are also violated under others.

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