An exploratory analysis of composite choices: Weighing rationality versus irrationality

Humans are engineered neurologically to make rational and irrational choices. This paper introduces a new paradigm for decision making – a composite choice model – in which economic agents are constantly weighing rationality versus irrationality when encountering options. In an exploratory, deterministic, two-period model, an assumption of a two-way cross-embedment (i.e., a two-way interaction between the rational and irrational components) results in a paradoxical phenomenon, an outcome of either tending toward bliss or abyss at the end of the first period. This implies, for instance, a psychological struggle between two selves within the mind. The paradigm proposed is compared to the dual-process theories recently developed by the cognitive sciences. Future research will explore implications for public policy design and implementation.

► Humans are engineered neurologically to make rational and irrational choices.
► This paper introduces a new composite choice model wherein economic agents constantly weigh rationality versus irrationality when encountering options.
► The model assumes the possible variations of one-way or two-way cross-enbedments (i.e., interaction) between rationality and irrationality.
► One specific case illustrated numerically shows that a two-way cross-embedment results in a paradoxical phenomenon, reflective of a struggle between two selves.
► Future research will explore implications for public policy design and implementation.