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How behavioral economics redefined rationality

Updated: Nov 28, 2023

behavioral economics redefined rationality

This infographic demonstrates that rationality is user defined. This challenges the long-held economics assumption that rationality is a single point or desired outcome. This fallacious, analytically-based rationality assumption is known as "robo-rationality."

Behavioral economics recognizes people are people, instead of assuming we are rational robots. Human psychology is VERY quirky. We have high-impact cognitive biases central to why singular robo-rationality does not work. As a result, "rationality" itself was redefined. In the behavioral economics school, the redefined "diverse rationality" varies by each person. It is impacted by situational framing, anchoring, and related cognitive biases. Robo-rationality is only a boundary condition for a varying, multimodal set of diverse rationality locations found in the total rationality space. These locations are subject to change over time and condition. Thus, what is perfectly rational to you is not necessarily rational for me. Diverse rationality is better understood as user-defined assessments, based on varying individual perceptions made with an imperfect and incomplete set of data. As the literature suggests, in certain cases, one's diverse rationality may persist for long time periods.

Behavioral economics helps us understand how people will make decisions based on uncertain time and condition factors unique to individual decision-makers. Behavioral economics is not for deciding "what is rational," it is about helping people and organizations to adapt as the causes and impacts of our diverse rationality are revealed.

To explore behavioral economics and rationality, please see the article:

Please check out our Adam Smith articles exploring this infographic and other related topics:


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