Rational choice and irrational individuals or simply an irrational theory: A critical review of the hypothesis of perfect rationality

We first describe the foundations of the theory of rational choice and then show the experimental evidence of invariable failure of the most basic rules of the theory. Our conclusion from these findings is that the normative and positive analyses cannot be reconciled, and which one will be pursued is clearly dependent on how the role or the mission of economic analysis is defined. Moreover, we assert that the normative analysis has the appealing features of generality and uniformity. Modeling what is called imperfect or bounded rationality and what much more realistically describes the decision maker's actions is still far from reaching the same level of generality. Nevertheless, we suggest that construction of new theories of choice based on scientific, casual, or experimental observations that indicate systematic deviation from the rational man paradigm is necessary.